Application Of Porters Five Forces In Claro Colombia Marketing Essay

Michael Porter was born in Michigan, USA in 1947. He is surely one of the most recognised people in the strategic management field. By the year 1969, Porter graduated in Princeton University in aerospace and mechanical engineering. Having completed his undergraduate degree with honors, Porter decided to give a turn to his career by making and MBA in the Harvard Business School which he also completed with excellence (Huggins and Izushi, 2011).

Porter continued being very interested in the economics field, reason why he carried on his academic career at Harvard’s Economic Department with a Phd in business economics.

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Before Porter, many other researchers intended to explain the strategic management practice and its objectives, such studies mainly come from a sub-area of economics called Industrial Organization, however these studies only concentrated on public and not in the private policy (Karagiannopoulos et al, 2005). Industrial Organization is where Michael Porter started, and in 1980 published his first book called “Competitive Strategy” where he contributes to the literature and the field itself with the Five Forces Model (Karagiannopoulos et al, 2005). BUSCAR LIBRO EN BRITISH LIBRARY PARA ANTECEDENTES DE MICHAEL PORTER FORCES

The Model:

Porter came up with this five forces framework for companies to develop a competitive advantage that can help them create strategies to beat and reduce the competence from their rivals, to protect the companies against the competition and other threats (Lynch, 2003). The purpose of this framework is to understand and cope with the competition(…).

Nevertheless, for Porter competition is not just about the rivals, companies face some other factors such as:

– The bargaining power of suppliers: The suppliers have high power over an industry or organization when there are only few and it is difficult to change from one to another, also when there are no substitutes for the suppliers, when the suppliers’ products or services deter a lot in the total cost of the product and finally when the supplier can undertake the value of the organization.

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– The bargaining power of buyers: Buyers are the customers and these ones compete with the industry and organizations by forcing down prices, demanding more services and more quality and making competitors fight against each other. The buyers have strong power when buyers are concentrated and there are not too many, when the product offered by the company is no different from the others, when the buyer can do the same service or product that the organization offers, when the price of the product is insignificant for the buyers and where there are few switching costs.

– Threat of potential new entrants: It depends on the barriers to entry and on how existing companies will react when new entrants come into the industry.

– The threat of substitutes: The products or services that can function in the same way as the original product of the industry or company are called substitutes. The ones to have into account are those that are making lots of profits out of it and also the ones that are improving their prices and quality.

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– The extent of competitive rivalry: It is the most evident force among the others and it helps to know how the value of an industry can debilitate through competition. High rivalry limits profitability, especially if it price competition. RESUMIR!

Porter’s 5 forces critics:

Porter’s five forces framework has been entirely applauded as well as it has gained a lot of opposite arguments from many authors. Some of those arguments come from Lynch (2003) that confronts Porter by saying that his framework is too static rather than dynamic like the environment is in real, the rapid change that the forces can take is not shown in the framework and that is something important that the model is lacking.

This statement is also followed by Grundy (2006) who criticised that the model is “too abstract and highly analytical” and for most managers that prefer to see clearer terms in frameworks in terms to apply it, that could appear to be too complicated to comprehend. For this issue, Grundy (2006) recommends a new adaptation of the model and suggests to combine the Five Forces Framework with other tools like PESTLE and growth drivers.

Furthermore, Yong Kim and Oh (2004) state that the model is very useful but it should be integrated with other sources such as the resource-based approach and the relational approach to make organizations’ strategies more effective. Porter’s framework is lacking on taking into account the benefits that relationships with customers and suppliers can bring when the relationship is harmonious and reciprocal (Yong Kim and Oh, 2004) and also on considering the resources of organizations that also influence on the companies’ profits (Hill and Jones, 1995) IMPORTANTE; the resource based approach and the relational approach can fulfill Porter’s framework gap by analysing the resources unique to a firm and the advantages that reciprocal relationships can give to a company’s competitive advantage respectively (Yong Kim and Oh, 2004).

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Another critic is made by Goold (1997) who say that the Porter’s five forces are not applicable and not very useful to nonprofits and religious organizations since it could be incorrect to study industry profitability within this sector.

In terms of new technologies such as internet, Karagiannopoulos et al (2005) cites Porter (2001) saying that Internet reduces the barriers to entry, however they contradict this statement stating that the costs centers stay being the same both physical and virtual, and these ones determine great level of entry barriers. Although the internet is very useful technology in terms of strategy, it does not change everything and it does not do everything by itself. Karagiannopoulos et al (2005) recognize that Porter’s five forces is a beneficial tool despite all the years that have gone by since it first came out.

Finally, Porter’s framework is also criticized by leaving behind the human side such as the culture, people, management skills aspects and leadership. Another critic for the framework is that the model may limit the innovation since it is mainly preoccupied on competition and market forces, leaving effectiveness at a side (Book library).

Despite all those critics, Porter’s framework has been and is still being very useful (Corporate strategy book), it made the microeconomics simpler and gave a tool to managers to study the external environment from another way than just the traditional SWOT (Grundy, 2006).

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Application of Porter’s five forces in Claro Colombia

Rivalry:

In terms of rivalry, Claro Colombia has strong rivals in the mobile phone services industry with Movistar, Tigo, Uff, Une and the just recently introduced in Colombia, Virgin Mobile. These rivals offer the same service with the more or less the same capabilities. However, Claro is taking the position of market leader with 61.9% of the total of subscribers (MinTic, 2012), that is the reason why it has been accused of being a monopoly and not playing cleanly by the rules.

The level of rivalry is high as it is the exit barriers in the industry…..***

There is also a strong price competition among the companies, where Claro has taken advantage of it by impulsing the lower price for on net calls (calls between same network provider), making their customers to avoid calling other networks. On the other hand, the price that Claro stipulated for off net calls (calls made to other network providers) is high, strengthening the regulation of forcing their customers to call only Claros’ numbers; that phenomena is what in Colombia is called the “club effect”. However the government just recently created a new law where stops the discriminatory pricing strategy of Claro for off net calls.The government decision was to reduce all off net pricing in order to benefit the customers (Dinero, 2013). This regulation is basically new and by the time of this report, there are still no reports or data of the impact on the industry after it was implemented.

Furthermore, the implications of having a price war within the industry is that it may cause lowing the profitability (Porter, 1979).

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In addition, one of the differentiation of Claro’s service is that it also has the best geographical coverage among the other competitors, its signal can go to rural areas where the other providers can not.

One other point to take into account is the attractive packages that Claro offers to customers with the latests mobile phone equipments. Claro usually offers recognised brand mobile phone equipments with mobile communication packages with a better price.

Bargaining Power of Buyer

Subscribers are not concentrated, besides in terms of switching costs, for postpaid subscribers these ones are really high. Postpaid subscribers sign a contract with Claro for usually 24 months, in which Claro offers packages of mobile services with mobiles from an extensive range of known brands. However, these ones only represent the …. of their customers (Mintic, 2012).

The majority of subscribers are prepaid or pay as you go, and the switching costs are not as high as the ones mentioned before. Nevertheless, the “club effect” mentioned above, stimulates customers to not change to other providers, offering cheaper prices for on net calls in a market where the majority of customers have Claros’ numbers.

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Anyhow, in Colombia, for customers to change from Claro to another provider, they also face the condition to change their mobile numbers and many do not want that.

Additionally, the buyer possesses plenty of information about the prices, services and quality.

Although, the marketing and branding campaign of Claro has helped to gain the domination market, the level of power of buyer is medium.***

Threat of substitutes

The threat of substitutes that Claro’s face come from fixed line, mobile internet services, broadband internet services, calling cards, satellite phones, and internet services such as skype, whatsapp and Viber.

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Claro expanded its services and it also offers fixed line, mobile internet services and broadband internet services.

The major threat comes from internet based services as skype and viber, which offer the same service for a significantly cheaper price, in any case these services need internet to function and Claro is an internet provider as a broadband and mobile internet service. However, on mobile internet services Claro is not the market leader and is staying behind in third place with 20.08% of the market after Movistar with 53.95% and Tigo with 20.24%. Nonetheless, in broadband internet services, Claro is a market leader but it does not have a dominant position, with 1.161.903 of subscribers at the end of the year 2012 is followed by UNE with 1.115.750 subscribers (MinTic, 2012).

EXPLICAR PORQUE LOS OTROS SUBSTITUTOS NO REPRESENTAN UNA GRAN AMENAZA.

Overall, the threat of substitutes is medium.

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Threat of new entrants

Barriers to entry the mobile phone services sector are high. Therefore it is very difficult to enter this industry.

Claro already has a well established brand and reputation for more than 18 years and it also has loyal customers.

In addition, it is very expensive to enter this industry due to the high costs to entry the market. Furthermore, to entry the market is expected to do it in a large scale in order to achieve the low costs levels (Porter, 1979). Besides, the reaction from Claro and other competitors to new entrants is expected to be aggressive.

Additionally, the government requires licensing and other policies and regulations in order to enter this industry.

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Bargaining Power of Suppliers

The suppliers of Claro are mobile phone fabricants such as: Apple, Nokia, Research in Motion, Sony Ericsson, Motorola, LG, Samsung, Cisco, Alcatel-lucent, and Hispamar. *****

Recommendations

Aggressive expansion to new areas, innovation, make product and service more atractive with prices and quality, strong campaign to clean reputation and build and keep loyalty..

marketing campaign.. hablar de la marca claro, que significa y que valores tiene, impulsar esos valores in order to no perder clientes. la reputacion de claro ha ido bajando, aunque su posicion competitiva sigue igual de lider, sin embargo claro tiene que tener en cuenta el nivel de rivalidad con sus competidores y asegurarse de no perder esa posicion, especialmente cuando el gobierno apreto mas las leyes antimonopolio.

Asegurarse de tener buen espectro en la subasta por la tecnologia 4G, que es primordial para el sucess future de las empresas de telecomunicaciones.

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claro podria hacer charity campaigns.

tener mas campanas impulsadas al sector juvenil (supongo que es el sector mas grande o uno considerable BUSCAR!) pueden ser conciertos, o celebridades para impulsar la marca. tener en cuenta tambien a que celebridad ponen ya que la misma celebridad puede afectar la imagen de la marca.

EN CUANTO A TECH 4G… BUSCAR BIEN QUE ES Y EN QUE CONSISTE… SI ES MAS QUE TODO DE PASAR LA TELEFONIA MOVIL AL ASPECTO INTERNET… ES UNA GRAN AMENAZA YA QUE CON ESTA TECHNOLOGIA, LOS MINUTOS BAJARIAN.

A LARGO PLAZO, CLARO PODRIA PONER SU MARKET LIDER POSICION A INTERNET. CONCENTRARSE EN CRECER PARA MANTENERSE

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When analysing the mobile telephony industry it is important to look at both aspects of the industry, as they are inextricably interlinked together ‘ the mobile handset manufacturers and the network operators. In both cases the industry is oligopolistic. The main competitors are Nokia, Apple and Samsung in terms of handsets and O2 and Orange in terms of their network competitors in the UK.

The industry analysis shows that there is intense competition within the industry, both in terms of manufacturers and network operators. The threat of new entrants to the industry is low as it is highly regulated. Buyer and supplier power are both moderate, as the industry is fairly oligopolistic. The threat of substitutes in terms of a substitute to mobile phones is weak; however a substitute to Vodafone handsets is stronger. TENER EN CUENTA

Bibliography

Huggins, R. and Izushi, H (2011) Competition, Competitive Advantage, and Clusters: The Ideas of Michael Porter IMPORTANTE CORREGIR

Karagiannopoulos, G., Georgopoulos, N. and Nikolopoulos, K. (2005). Fathoming Porter’s five forces model in the internet era. 7 (6), 66-76.

Grundy, T. (2006). Rethinking and reinventing Michael Porter’s five forces model. Strategic Change. 15 (5), 213-229.

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Lynch, R (2003). Corporate Strategy. Third Edition. Harlow, Financial Times Prentice Hall.

Appendix 1

Porter’s five forces

Type of Force

Overall Impact

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Findings

Implications

Rivalry

High

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– Claro possesses several rival companies such as: Movistar, Tigo, Uff, UNE and Virgin Mobile.

– Strong and high rivalry with marketing and price competition among rivals.

– Claro is the market leader with the 61,9% of total subscribers.

– High exit barriers.

– High rivalry and high price competition may limit the profitability.

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Bargaining Power of Buyer

Medium

– High switching costs for subscribers.

– Buyers have plenty of information about prices, services, products available in the market.

– Subscribers are not concentrated.

–

Threat of substitutes

Medium

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– Substitutes products are fixed line, mobile internet services, broadband internet services, calling cards, satellite phones, internet services such as skype, whatsapp and Viber.

– Claro also offers fixed line, mobile internet and broadband internet services.

–

Threat of new entrants

Low

– Barrier to entry are high.

– Well established brand.

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– The costs to successfully enter the market are high.

– To enter and compete in the market, the entrant has to come in a large scale.

– No danger or high threats for the moment.

– Create strategies to maintain this position.

Bargaining power of suppliers

– Fabricants such as Apple, Nokia, Research in Motion, Sony Ericsson, Motorola, LG, Samsung, Cisco, Alcatel-Lucent, and Hispamar.

– The company has contracts with other companies for services like roaming international.

Appendix 2

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SWOT Analysis

Strengths:

– Advanced Technology

– Market leader position

– 19 years of experience

– Knowledge

– Favorable Geographical coverage

– Well established brand

– Economies of scale??????

Weaknesses:

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– Complaints for bad customer services

Opportunities:

– Growing market

– Focus on 3G and the new 4G technology

Threats:

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– High competition among rivals

– New competitors emerging

– Stock Market Pressure

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