An introduction of a new technology is an introduction of a new business. This is a statement of fact and evidence abounds in many African economies. The introduction of mobile phones came with space to space business and eventually gave rise to mobile money services.
Required:
Using Porter’s Five Forces model, identify the competitive forces that influence the state of competition in the mobile money industry and the profit potential of the industry as a whole. (10 marks)
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- The threat of new entrants
New entrants into the mobile money industry will bring extra capacity and more competition.
The strength of this threat depends on:
The strength of the barriers to entry. The amount of capital required to start the mobile money business.
The likely response of existing competitors to the new entrant. - Availability of a Substitute
A substitute product is a good or service produced by another industry which satisfies the same customer needs. The ability to transact business and to make transfers using online banking on a mobile phone. - The bargaining power of customers
The bargaining power of customers may force down the profitability providers of mobile money services as customers want better quality products and services at a lower price. Just how strong the position of customers will be depends on a number of factors.
How much the customer pays for the services?
How critical the product is to the customer’s own business
Switching costs (ie the cost of switching from mobile money to online banking)
When mobile money service quality is important to the customer, the customer is less likely to be price-sensitive and so the industry might be more profitable as a consequence. - The bargaining power of suppliers
Mobile money providers can exert pressure for higher prices. The ability of suppliers to get higher prices depends on several factors.
Whether there are just one or two dominant suppliers to the industry, able to charge monopoly or oligopoly prices
The threat of new entrants or substitute services to the mobile money industry
The importance of the supplier’s service to the customer’s business
Whether switching costs for customers would be high.. - The rivalry amongst current competitors in the industry
The intensity of competitive rivalry within an industry will affect the profitability of the industry as a whole. Competitive actions might take the form of price competition, advertising battles, sales promotion campaigns, introducing new products for the market, improving after sales service or providing guarantees or warranties.
Competition can stimulate demand, expanding the market, or it can leave demand unchanged, in which case individual competitors will make less money, unless they are able to cut costs.