This Five Forces analysis of Verizon Communications Inc. assesses the external factors in the telecommunications industry environment relevant to the company’s strategies. Michael Porter’s Five Forces analysis model is an external analysis framework that evaluates the conditions of the industry environment. In the business operations of Verizon, the telecommunications industry is analyzed to determine the impact of external factors on the company. Also, this Five Forces analysis determines the intensity of each of the external factors and how they differ in their significance to the strategic approach of Verizon. As one of the biggest firms in the U.S. telecommunications market, the company continually reinforces its business to address competition. Competition is shown as the most significant force in this Five Forces analysis of Verizon.
Management personnel can use this external analysis to determine the appropriateness of the strategies of Verizon Communications Inc. in addressing the most pressing concerns in its industry environment. This Five Forces analysis can guide managerial decisions in addressing the impacts of the identified external factors. Because of the high intensity of competitive rivalry in the telecommunications market, it is essential that Verizon enhance its competitive advantages.
Summary & Recommendations: Five Forces Analysis of Verizon
Summary. The results of this Five Forces analysis indicate that competition is the force that has the highest intensity and influence in the industry environment of Verizon Communications Inc. The identified external factors show that the threat of new entry has the lowest intensity among the five forces in the telecommunications industry. The following are the intensities of the forces determined in this Five Forces analysis of Verizon:
- Competitive rivalry or competition: Strong Force
- Bargaining power of buyers or customers: Moderate Force
- Bargaining power of suppliers: Moderate Force
- Threat of substitutes or substitution: Moderate Force
- Threat of new entrants or new entry: Weak Force
Recommendations. The following recommendations are for sustaining the stability and growth of the business despite the five forces shown in this external analysis. It is essential for Verizon to maintain its growth through competitive advantages based on high quality of services and high economies of scale linked to its wireless telecommunications infrastructure. The company should aim to strengthen its business against the external factors assessed in this Five Forces analysis. Verizon’s mission statement and vision statement highlight technology as a central factor in strengthening the business. Also, the high intensity of competitive rivalry must take priority in growth and expansion strategies. Based on the results of this Five Forces analysis, it is recommended that Verizon Communications Inc.:
- Strengthen competitive advantage through product differentiation to address the force of competitive rivalry.
- Expand its infrastructure to maximize economies of scale and enable the company to maximize profits.
- Further enhance the quality of services to attract and retain more customers, to address the bargaining power of customers.
- Enhance its marketing strategy to ensure customer loyalty compared to competitors. Verizon’s marketing mix or 4Ps must reflect this enhancement.
Competitive Rivalry or Competition against Verizon (Strong Force)
This component of Porter’s Five Forces analysis determines the intensity or force of competition against Verizon Communications Inc. Competitive rivalry affects the telecommunications industry environment by imposing challenges on companies in growing and maintaining their market shares. In this external analysis of Verizon, the strong force of competition is based on the following external factors:
- Low product differentiation (strong force)
- High aggressiveness of telecommunications firms (strong force)
- High exit barriers (strong force)
The telecommunications industry has a low degree of product differentiation because competing products are highly similar, with small differences based on some variables. In this Five Forces analysis of Verizon, low product differentiation is an external factor that strengthens the intensity of competitive rivalry by making it easier for customers to change their service providers. In the wireless telecommunications market. Verizon’s generic competitive strategy and intensive growth strategies focus on quality as a differentiating factor to attract customers to its services, although these services have similarities to the services of competitors, like T-Mobile, AT&T, and Google Fiber. On the other hand, the high aggressiveness of firms strengthens the force of competition in the industry environment. Verizon and other firms aggressively compete through marketing campaigns and technological upgrades. Moreover, this Five Forces analysis identifies high exit barriers, which include the high cost of telecommunications infrastructure. This external factor discourages established firms from leaving the information and communications technology and services industry, thereby keeping competition high. Thus, this component of the Five Forces analysis of Verizon shows that competitive rivalry is a major force that shapes the strategies of the business.
Bargaining Power of Verizon’s Customers/Buyers (Moderate Force)
The intensity of customers’ impact is evaluated in this component of the Five Forces analysis of Verizon Communications Inc. Customers or buyers affect the company’s revenues, profit margins, and business value. The following external factors contribute to the moderate bargaining power of customers over Verizon and the telecommunications industry environment:
- Low information asymmetry (strong force)
- Moderate switching costs (moderate force)
- Moderate price sensitivity (moderate force)
The low level of information asymmetry corresponds to the high quality of information that customers can access to know about products in the telecommunications market. In the Five Forces analysis model, this external factor strengthens the bargaining power of buyers or customers, based on customers’ ability to evaluate and compare the services of Verizon and its competitors. Also, in this part of the Five Forces analysis, moderate switching costs have a considerable effect on customers’ power. For example, transferring between wireless service providers comes with moderate costs or consequences that limit the power of customers in influencing Verizon. Another notable external factor is the moderate price sensitivity of customers, which leads to the moderate likelihood of customers using price as a basis for shifting from one service provider to another. This potential shift is limited through differentiating variables, such as service quality, which is among the main business strengths determined in the SWOT analysis of Verizon. Consequently, this component of the Five Forces analysis of Verizon Communications Inc. shows that customers’ demands and expectations are a moderate force on the business and the industry environment.
Bargaining Power of Verizon’s Suppliers (Moderate Force)
This component of the Five Forces analysis considers the intensity of the influence of suppliers on Verizon and the telecommunications industry environment. Suppliers affect the company’s supply chain costs, effectiveness, and efficiency. The moderate bargaining power of Verizon’s suppliers is based on the following external factors:
- Moderate size of individual suppliers (moderate force)
- Moderate population of suppliers (moderate force)
- Moderate overall supply (moderate force)
The moderate size of individual suppliers has a moderate contribution to the intensity of suppliers’ power in this Five Forces analysis. For example, an individual hardware supplier moderately influences the strategies of Verizon in the wireless telecommunications market. Also, because of their moderate population, suppliers exert a commensurately moderate force on the company and the industry environment. This condition enables suppliers to moderately influence Verizon’s operations management strategy for supply chain management and other areas of the business. Moreover, the moderate overall supply is a significant factor in this Five Forces analysis. An individual supplier’s strategies have a moderate and limited effect on the company’s supply chain. This limitation is based on the company’s moderate access to other sources or suppliers. Thus, the external factors in this Five Forces analysis indicate that suppliers’ bargaining power is a significant strategic concern with a moderate impact on Verizon Communications Inc.
Threat of Substitutes or Substitution (Moderate Force)
The intensity of the threat of substitution is determined in this component of the Five Forces analysis of Verizon. Substitutes pose a threat in the telecommunications industry environment by potentially reducing the market share and revenues of existing firms. In this external analysis, Verizon Communications Inc. experiences the moderate threat of substitution based on the following external factors:
- Moderate switching costs (moderate force)
- Moderate availability of substitutes (moderate force)
- Low performance-to-price ratio of substitutes (weak force)
In this Five Forces analysis, the intensity of the threat of substitution is partly based on moderate switching costs. For example, customers may face non-refundable expenses and downtime while shifting from Verizon products to substitutes. In addition, the moderate availability of substitutes is an external factor that corresponds to customers’ limited access and use of substitutes. On the other hand, the low performance-to-price ratio weakens the threat of substitutes against firms in the market. This low ratio discourages customers from using substitutes for the services of Verizon. Such factors in this Five Forces analysis are subject to potential disruption in the industry environment through technological trends, such as the rapid advancement of information and communications technologies determined in the PESTEL/PESTLE analysis of Verizon Communications Inc. Thus, the company must strategically keep abreast with the latest technologies and continue upgrading its systems to remain strong against potential substitution. Verizon’s strategies must address the threat of substitution, which is a moderate issue shown in this component of the Five Forces analysis.
Threat of New Entrants or New Entry (Weak Force)
This component of the Five Forces analysis considers the intensity of the impact of new entrants on Verizon Communications Inc. and the industry environment. New entry is a threat that can increase competition and reduce prices and profit margins in the company’s telecommunications business. The following external factors contribute to the weak force or threat of new entrants against Verizon:
- Moderate switching costs (moderate force)
- High capital requirement (weak force)
- High aggressiveness of existing telecommunications firms (weak force)
Switching costs determine the intensity of the threat of new entry in the industry environment assessed in this Five Forces analysis. In this case, such an external factor corresponds to the moderate likelihood of customers switching from Verizon’s services to the services of new entrants or new firms in the telecommunications market. On the other hand, the high capital requirement for establishing a business in the industry weakens or reduces the threat of new entry. New telecommunications firms find it difficult to compete with Verizon because of the high capital needed to establish competitive telecommunications infrastructure. Furthermore, this Five Forces analysis identifies the high aggressiveness of firms as a determinant of the threat of new entrants. Verizon’s aggressiveness in competing in the market weakens the effects of new entry in the industry. Based on this component of the Five Forces analysis of Verizon Communications Inc., the threat of new entry is a minor strategic issue in the business.
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