Telecom industry in Hong Kong has developed from a monopolistic market to a near mature market. Several players have come into the market and the factors that influence customers in choosing a service provider has also changed. The objective of this research is to determine if pricing is still the major influencing factor in choosing a service provider or non-pricing factors have a greater impact. It aims to identify the additional factors that can affect the decision factor of customers in Hong Kong corporate customer.
A market research based approach was used in validating the hypothesis that pricing is not the critical factor in decision process for corporate customers. Based on the data collected from customers of existing service providers, further data was collected on the important factors that the customers took into consideration while selecting service provider.The research involved collection of data from 39 different customers who are using services from one of the existing players. Upon analysis of the data from the responses, it was concluded that customer quality was the most important factor for customers to select a particular service provider. Further more, customers were willing to pay extra for additional improvement in customer service.
Based on the results of the research, different strategies are recommended including new product strategy, and steps to adopt customer focus and enhanced customer service is provided for the service provider to implement. Further the research could be enhanced to study other factors apart from the currently focused parameters to identify other key factors that could provide differentiation to the service providers.IntroductionHong Kong, a Special Administrative Region (SAR) of China, has built itself into one of the most sophisticated telecommunications markets in the world. Under open market policy, a few telecoms carriers were established in Hong Kong. In the wake of liberalization of the market, companies such as New World Telecommunications Limited (“NWT”), Hutchison Global Communications Limited, Wharf T&T Limited and CTI Limited entered the market.
Different strategies were adopted by the players to ensure profitability, higher market share and revenues. Some of the players effectively used a low-pricing strategy in order to survive resulting in a heavily eroded the profit margin. Low-pricing prompted players such as Hong Kong-based carriers including PCCW, NWT, Hutchison, Wharf T&T and CTI, to re-think the market positioning strategy in order to gain market shares.The key hypothesis in this paper is:Non-pricing factors competition is more important to service providers in today’s Hong Kong telecoms market.
Soft component such as excellent customer services is the crucial winning factor. Thus the central research question isHow does a telecoms corporate user evaluate the customer services factor (the non-pricing factor) against pricing factor in selecting the telecoms carrier as its service provider?Pricing in tradition serves as the dominant factor in business purchasing decision. However, in a nearly “perfect competition” environment like Hong Kong telecoms market nowadays, it is a very interesting topic to know how the market players should differentiate their strategy and where their resources should be focused on. The extension of this central theme to a series of sub-questions is as follows:How important is pricing and non-pricing factors, and the weights, in the selection criteria of the telecoms corporate users?For example, will the user be willing to pay more to enjoy better customer services if the pricing of one carrier is higher than the others? It is critical to investigate the behaviour of the users in this situation.What are regarded as quality customer service offerings and what aspects the users particularly want?In discussion of customer services, it relates to every single experience and encounter between the users and the telecoms carriers. However, it is important to find out what commitments are more expected by the users so that the carriers can put correct resources to build these areas. Waste of resources will inevitably occur if the carriers are not able to identify clearly what the users need and thus the understanding of the users’ priority list is critical.What are the key success factors and what is the future direction for the telecoms carriers?This paper tries to get some insights on the key success factors to win in such a highly-competitive market and the proposed long-term actions the telecoms carriers have to take.
In this project paper, a detailed investigation will be conducted to find out the answers of these key questions by drawing the support of different management theories and concepts. 1 Chapter 1 – Research Objectives and Research Method1.1 Research ObjectivesThis research aims at gaining an understanding of the impact of pricing and non-pricing factors in influencing a corporate telecom user to select the telecoms carrier and the importance of customer service in Hong Kong market.
It also serves to provide substantiate the findings in Hong Kong environment under a controlled scope and generate findings to supplement the regional-based research papers reviewed as part of this research report. The essence of this research is that it relays to the collection of evidence to support the arguments. The aim is not to create any new empirical theory. Rather, the purpose of conducting this research is to find out real world facts and see how these relate to academic theories. An overall telecoms environment analysis has also been done to draw a preliminary assumption that price competition, based on analysis from Five Forces Model, is no longer a sustainable strategy and some forms of differentiation are necessary.
Specifically, the objectives of this research are:§ To evaluate the importance of pricing factor in today’s telecoms world;§ To prove the value of developing a customer service strategy;§ To identify key success factors when devising the customer service strategy;§ To provide anecdotal real-word evidence to testify the applicability of academic theories;§ To gather base of statistical data for establishing recommendations. 1.2 ApproachThe approach adopted can be summarized as following:§ Familiarise with the market characteristics: This activity included:o Study of the the different players in the marketo Key issues identified in the market by the industry and available in the media.
o Identify key trends in the market.§ Review relevant literature available. This activity included:o Identification of relevant parameters or areas that can be used for the researcho Identification of any supporting factors for the hypothesis§ Validate the hypothesis of the research with the market using market research.
This activity included:o Analysis of the research questionnaire responseso Identification of any factors that support the hypothesiso Identification of any factors against the hypothesiso Derive conclusion based on the research data§ Formulate strategies for the service providers in light of the conclusions of the research.1.3 Choice of Research MethodsThere are various kinds of research methods under my consideration.
First, a Case Study was ever considered to take a full analysis on a single corporation to understand its selection criteria on choosing telecoms service provider and its requirements on service quality. The main advantage of this approach is to have detailed investigation and provide in-depth account of events, relationships, experiences and processes this company works with the telecoms service provider. However, there are limitations if this approach is adopted.It is very difficult to get the consent of a corporation to assist with this in-depth analysis because it incurs inputs of huge amount of time and resources from that company.
In addition, during the progress, disclosures of confidential information on business decisions are required and the interviewees may not be willing to do so. What is more, conducting a research on a single company is not representing the whole Hong Kong environment. The data collected is not suitable for generalization and bias will occur. All these default the purpose of getting a general insight of the current market atmosphere.
Therefore, this approach is abolished.Another consideration is to use the observation research. The advantages of using observation are that natural settings are used and the information collected is good for explaining behaviours. However, this is also not suitable for my topic.
My analysis is not purely on human behaviour and observation alone cannot warrant the gathering of necessary data. My research needs to unweil the true needs of the corporations on the telecom services and thus their direct comments and information are critical.Another type is to use questionnaire and it looks this method most fits to achieve the purpose of this study.
By using questionnaire, different kinds of questions can be designed to gather the data that is needed. The benefits are that they are economical and easy to arrange, provide standardized answers and can be pre-coded for analysis.In the questionnaire employed, different types of questioning techniques are used.. For example, simple checklist type of Yes/No Questions is used to allow the respondent to tick a clear-cut answer. In addition, Ranking questions are used to ask the respondent to rank in order of importance and impact so that priority and levels of importance can be developed. Scaling questions are also used to obtain the respondent’s view on an issue with weighing factor.
A few open-ended questions are also provided to allow respondent to give comments in free-style format and these questions also provide chances for them to give information on added issues that the other questions are not pre-set for.Overall speaking, in the design of the questionnaire as attached in the Appendix, questions were built with simplicity and were easy to understand to avoid unnecessary misunderstandings and confusions. A lengthy questionnaire was avoided to encourage higher response rates from the busy corporate customers who might be sick of filling in questionnaires and surveys. Demands on the respondent’s memory on trivial and detailed figures were also not required.
The target completion time is less than 15 minutes, which should be acceptable by most Hong Kong people.1.4 How to Approach the RespondentA key consideration is how to conduct the research in the most cost effective and efficient manner. One method is to send the questionnaire by posts but drawbacks are anticipated. Response rate can be very low because people will simply ignore postal material.
This may need reminders, and repeated sending adds costs.Face-to-face interview was considered. However, in Hong Kong situation, it was very difficult to get the respondents agreed to allocate their valuable time in a meeting for this kind of purpose. They were only willing to fill in the questionnaire. In addition, as the researcher was a full-time employee and conducting huge numbers of face-to-face interviews are not feasible and put heavy burden on the researcher’s work life and time. The questionnaire was sent by e-mail.
In order to increase the response rate, an advanced courtesy call was made to all the targeted respondents before sending the e-mail in order to explain the purpose and to get their prior consent. Follow-up calls were also made on the same day when the questionnaire is sent out with the intention of giving a friendly reminder and strengthening their earlier commitment to fill in the questionnaire.1.5 Research PeriodThe survey was conducted within 6-9 months.
Data was expected to obtain within a controlled period of time so that the respondents’ feedback could represent the experiences and expectations under a common timeframe. Telecoms world is dynamic and ever changing. If the research period extends too long, say over a year, the coherence and correlation of the data obtained in earlier time may be loosened and outdated against current industry environment.
1.6 Survey Sample Size and Population ChosenThe population chosen for the survey research mainly consists of the corporations in various sectors including banking and finance, business services, manufacturing & trading, etc. I targeted to send out around 70 questionnaires.The position of the targeted interviewee is preferably the network manager or similar, who assumes the responsibility of managing the telecom infrastructure and spending, from corporations with significant spending in telecoms expenses.
Finally, the 60-70 e-mail contact lists were short-listed.1.7 Survey Questionnaire Pre-testingIn order to make sure the designed questions are easy to understand and do not incur inaccurate data, a pre-testing was conducted with 5 network managers in various corporations to fill in the questionnaire. No major amendments were needed upon their comments after pre-testing and the questionnaire was found to be effective.1.8 Limitations of the researchThe following limitations were identified for the research:§ Sample size of the customers: The sample size for the research was small due to limitations of the research resources. Although the spread of the sample seem to indicate a fair representation, it may be a coincidence.
A study needs to be done on identification of the right sample.§ Profile of the participants: The profile of the participants was identified based on high level criteria. However, the result of the research may be skewed by the amount of knowledge of the respondents. This was not verified.§ Some of the industry areas of the respondents were not adequately represented.2 Chapter 2 – Research Background2.1 Market BackgroundThe research is conducted in the Hong Kong telecom market. Being an emerging market almost approaching maturity, it has had major developments in the recent decade that provides background to its issues and challenges today.
§ Telecommunications market in Hong Kong became keen and competitive after the commencement of de-regulation policy dated back in 1996.§ Market monopoly was removed. Four more new entrants appeared and have built the current market scene in conjunction with PCCW.§ Government influence is outstandingly pivotal in this industry in addition to the standard five market forces under Michael Porter’s model.
Regulations shape the market outlook.§ PCCW is still the mainstay. Market share is, however, being diluted by the four newcomers.§ Several telecoms carriers still continue low pricing as their main strategic focus, especially obvious by CTI & Wharf T&T.
PCCW focuses more on providing good service quality, and adopts an above-average pricing strategy.§ Industrial papers and market interviewees with the management of some telecoms carriers give the future outlook that price-cutting strategy should not be used. They provide same recommendation to focus more in improving the service quality and customer service.§ All telecoms carriers, except CTI, have invested resources to build customer charter and service commitment.
This proves the value of building better customer service to gain customer retention.2.2 Key Players ProfileThis project paper limits to the scope of analysis on telecoms carriers in Hong Kong. Currently, there are five key players in this industry. Below are snapshots on their background and key business strategies.2.2.
1 PCCWPCCW Limited is Hong Kong’s fixed telecom incumbent that provides a spectrum of communications services from local telephony to broadband services to business solutions. It has focused in recent years on its transition from a technology-driven telecom company to an integrated-communications service provider. PCCW is listed on the Stock Exchanges of Hong Kong and New York under Chairman Richard Li.
It is currently the largest carrier among the 5 in Hong Kong, and is also one of the Asia leading telecommunications firmAmong the 5 key players, PCCW offers the most complete and comprehensive telecommunications services but the prices are the highest in most occasions. PCCW wins its business by offering quality products and tailor-made solutions. It puts efforts in developing service commitments that help retaining a pool of loyalty customers. Nevertheless, this world-class service helped PCCW to win a number of international awards including Best Marketing Strategy Award 2004, Best in Business Award 2005, Best International Leased Lines Award from Gartner 2005.2.2.2 New World TelecomNew World Telecommunications Limited (NWT), established in 1995, is a member of New World Development Company Ltd.
NWT received a fixed telephone license and was one of the first fixed network operators to directly compete with the incumbent Hong Kong Telecom (now renamed as PCCW). It provides a wide array of services, including fixed line and broadband internet services, data, International Private Leased Circuit (IPLC), IDD voice, International VPN and Managed IP services. Its business broadband was launched in March 2001 with success.To support its growth in international business, NWT has developed a global network infrastructure on Asia’s key backbones.In 2003, NWT was honoured as one of the top three Best Asian Competitive Carrier by the influential magazine, Telecom Asia.
NWT was so far the only telecoms carrier in Hong Kong winning this award. This recognition signifies its remarkable achievement in the international arena.NWT’s pricing strategy for data and internet access service is positioning itself at the mid-range level. For IDD voice, it tempts to act as one of the lowest pricing provider in Hong Kong. All in all, NWT has established a strong foothold in the local and regional telecommunications market.It has put resources to build a Service Charter, which aims to give customers a better understanding of their standards of services. A sample of the Service Charter is attached in the Appendix for reference (Source : New World Telecom homepage)2.
2.3 Hutchison Global CommunicationsHutchison Global Communications Limited (HGC) is a wholly-owned subsidiary of Hutchison Telecom, which is a member of Li Ka-Shing’s Hutchison Whampoa Group. HGC was established in 1995. In recent years, it has put efforts in building its own global telecommunications network with a portion being inter-connected to China Telecom network. This connectivity allows direct telecommunications links with the Mainland and the total interconnection capacity amounts to 22.
5Gbit/s.HGC offers its data and internet access service at mid pricing range. For IDD voice, it sells at mid-to-low level. HGC also develops a Service Charter document. No introductory company background and service profiles are included in the document. This charter approaches to offer a more comprehensive matrix of service levels under different services and different categories than the one developed by NWT. This receives positive feedback from the market.
Again, a copy is attached in the Appendix for reference. (Source : Hutchison Global Communications homepage)2.2.4 Wharf T&TWharf T&T Limited is a member of the Wharf Group of companies, Hong Kong renowned conglomerate for over 100 years. Licensed in 1995, Wharf T&T was the first new entrant to break the industry monopoly in Hong Kong.
Its main business strategy in the beginning was to capture markets in the domestic fixed network and IDD voice business Wharf T&T adopts low-pricing strategy for all its service offerings. Among these 5 players, its prices are usually the lowest or the second-lowest. It has also developed the Customer Charter but it is a simple single-page document. A copy is attached in the Appendix (Source : Wharf T&T homepage)2.2.
5 CTICity Telecom (H.K.) Limited (CTI) played a significant role in the liberalization of the monopolistic international telecommunications market in Hong Kong by introducing the international call-back voice service in 1992.
In recent years, it has expanded its data and internet access services by participating in the investment for submarine cables construction. Hong Kong Broadband Network Limited (HKBN), a wholly-owned subsidiary of CTI, was established in 1999 to particularly promote the internet-related services.Service offerings of the CTI group are mainly in IDD voice, internet access service and limited data services.
The portfolio is less comprehensive that those offered by its competitors. CTI is a typical company offering the lowest pricing strategy. It does not offer any service level guarantee. No SLA or Customer Charter document is provided to the customers.
CTI is known in the market to compete purely on pricing and takes no concern in quality service developments.In the research methodology, we will target to collect feedbacks from the corporations that are using these carriers’ services, and their views on the importance of pricing and customer service.2.3 Key Market IssuesThis section intends to discuss the current market issues happening in real world so as to let the readers understand more the intensity of the competition in nowadays telecommunications industry and the ways the market players are striving to stay competitive and survive.
2.3.1 OvercapacityThe past 5-7 years have seen an extraordinary increase in undersea cable built plan, which resulted in oversupply of the telecommunication capacity.
The result was a stunning increase in undersea fiber-optic capacity. An overall research has been done by TeleGeography to outline the submarine cable capacity trends for 1998-2004.Table 3 : Submarine Cable CapacitySource : TeleGeography researchIn Gbps1998199920002001200220032004Intra-Asia16.141.
12,388.1U.S.- Latin America10.613.1250.
181.1Owing to the huge supply of bandwidth in intra-Asia region, on competitive routes, prices have fallen as high as 50% or more. In tough situation of falling market prices and sluggish demand growth, many telecommunication carriers that heavily indebted with bank loans went bankrupt. The industry has undergone a period of consolidation in the last few years.2.3.2 Market ConsolidationTelecommunications market experienced an unprecedented chaos in the last 5-7 years due to external challenges as discussed in this chapter.
The industry in the world as a whole was being consolidated. Many carriers closed down. Merger and acquisition occurred frequently.Convergence, consolidation and realignment are expected to continue in the near future in a worldwide mannerIn an interview done by Telecom Asia magazine with William Kwan, the New World Telecom COO, he was asked if there were chances of the industry in Hong Kong undergoing serious consolidation.
He responded that the changes were still not high in Hong Kong because most of the telecom operators in Hong Kong were well funded. He commented that there was no urgent need to integrate or consolidate.‘Today, there is no economy but the global economy, no Internet but the global internet, and no network but the global network” , said by George Gilder, Forbes, Feb. 19, 2001. This statement pinpoints that the boundary of telecoms world becomes less well defined. The world is interlinking with each other and all world players are influenced by the overall market dynamics. Nevertheless, the chance that aggressive market consolidation will happen in Hong Kong should not be underestimated if the global market environment is still in downward sloping.2.
3.3 Current StrategiesWith the above analysis, we can identify the key challenges that the Hong Kong telecoms carriers are facing. Overcapacity, sluggish market growth, and price competition plagues the international telecommunications market – the three conditions that will not change soon.
Service providers have been adopting various strategies to grow in this market conditions.In the Telecom Asia interview, William Kwan, the COO of New World Telecom made the following comment.“ We (New World Telecom) have participated in the price war in the past. But we think that pricing as a marketing factor has become less and less effective over time….
…. While prices do have to be competitive, our strategy is to target the market segment that requires a certain service level and is willing to pay an appropriate price for that. We are focused on enhancing the value of our services rather than trying to offer the lowest prices “Certain market analyses say that telecom users have increased significantly the dissatisfaction ratings on various aspects of the service including service quality, contract details, billing accuracy, etc. William’s response made a good statement to address the price war issue and his emphasis on the importance of service quality provided a dim light for the road ahead. While pricing cutting strategy no longer works, the differentiation should be on the value of service itself bundled with excellent customer service offerings.
Customer requirements are ever-changing and the telecoms carrier can only succeed if it is capable of providing continuous improvements to meet the dynamic changes and gain customer satisfaction. This should be the new battlefield.3 Chapter 3 – Hong Kong Telecommunications Industry – Market Environment AnalysisTelecommunications industry covers a wide scope of related services ranging from a little fixed telephone line at home to sophisticated satellite services. The services can be offered to individual users such as personal mobile phone service or corporate users such as international data transmission service. This research is limited and focused on the the key corporate users from various industries that have consumption of standard office-used telecoms services such as IDD voice, Internet access service and/or international data transmission service. This section provides details of the market analysis performed to provide background of the research.
3.1 PESTEL Analysis for Macro External EnvironmentThe PESTEL model is here adopted to take an overall review in the Hong Kong external environment and its impact on the telecommunications market.3.1.1 Political Factor:3.1.
1.1 Political stability and investment in telecommunicationHong Kong is now controlled under China government. Under the principle of “One Country, Two Systems”, the socialist system and policies shall not be practiced in the Hong Kong SAR and Hong Kong’s previous capitalist system and life-style shall remain unchanged for 50 years.
Hong Kong will enjoy a relatively high degree of autonomy. A scene of political stability is viewed in general. This lays a positive foundation for infrastructure investment by telecommunications players.Hong Kong government even set up a specialized department called “Invest Hong Kong” to encourage and facilitate foreign investment into the city by providing all the supports that investors want. (Invest Hong Kong, 2007). In coming years, telecommunications in Mainland China will be gradually liberalized under the Closer Economic Operation Agreement (CEPA). This adds to Hong Kong’s advantages as investment destination and further strengthens the city’s historical gateway to China.3.
1.1.2 RegulationThe regulatory environment in Hong Kong is based on minimum regulation and light handed. It promotes competition and is geared to protect consumer’s interest. There regulation is based on market driven solutions, technology neutral with no restriction on foreign ownership, and no restriction in the number of licenses.The regulatory framework complies with the WTO requirements of open and fair competition.
3.1.2 Economic FactorThe telecom market has the following key economic considerations:§ The cost of telecommunication service and call rates are coming down continuously: Due to the competition in the market, consumers are getting telecom services at lower rates every year.§ After the economic downturn, corporates are more careful in their expenditure. Telecom costs being an important part of costs for most organizations, the spending is not likely to increase significantly. With the usage not growing enough to compensate for the reduction in the rates, service providers may face reduction in profits.3.
1.3 Social FactorThe following social factors can affect the customer needs and market size:§ Growth of organizations within Hong Kong and more corporate doing business with entities outside Hong Kong. This can increase the market size for service providers.§ Economic growth of Hong Kong resulting in increased activity within the corporate and hence increased usage of telecommunication services.§ The growth of the market not keeping pace with the supply of services causing market share to reduce for all players.3.1.4 Technology FactorHong Kong is prompt to adapt new technology, and technological development has its certain role in affecting the telecommunications market.
The following technological advances are likely to impact the telecom business:§ Growth of IP products: The development of VOIP service (Voice Over IP) is cited here. This service is simply a kind of internet related product that runs voice application on internet backbone. It is however not a mature product in the market yet but is surely imposing threat to the incumbent telecommunication carriers that rely heavily on IDD voice business. VOIP can gradually eroding IDD revenue of a service provider.
§ 3G and other new technologies: When new technologies emerge in the market, it is necessary for service providers to upgrade their network and provide the service to the customer. This can be a factor for retaining customers or a reason for customers to move to another network.3.
1.5 Environmental FactorThe key environmental factors that influence Hong Kong telecommunication factors are:§ Negative opinions that can easily spread through internet causing corporate to move to other services due to issues such as security threats.3.1.6 Legal FactorHong Kong is well known to its established and respected legal system. The rule of law is applied consistently and without discrimination.
The Office of the Telecommunications Authority (OFTA) was established in 1993 to regulate and facilitate the development of this sector.In a summary, PESTEL analysis helps to understand the overall situation in Hong Kong from diverse perspectives and what impacts they have on an industry, like the telecommunications industry that this project paper concerns.3.2 Industry Analysis for Telecommunications in Hong KongMichael Porter’s Five Forces model is applied for considering the competitive influences of the telecommunications industry in Hong Kong.3.
2.1 Potential entry of new competitorsThe seriousness of the competitive entry threat depends on two main factors, which are the level of barriers to entry and the expected reaction of incumbent firms to new entry. The following characteristics can be attributed to the Hong Kong telecommunication market with respect to barriers to entry:§ High barrier of entry due to the heavy investment required by the telecom operators to put up the infrastructure.§ The market is regulated and entry of new operators is not possible without license.§ For new operators, it is difficult to attain the brand awareness of the existing vendors. It requires extensive marketing effort.§ The sector is highly technical and technology driven.
This restricts the number of new players.§ The sector has high exit barriers§ Economies of scale: With a large-scale entry, the market shares of existing carrier(s) would be diluted. For example, PCCW (formerly known as Hong Kong Telecom) has suffered a continuous decrease in its market share in IDD voice business when the new comers, such as New World, Hutchison, etc. entered into the market in recent years. In the past before de-regulation, PCCW held the monopoly of the IDD voice business but now the market share has been driven down to below 60%. The rest of the market is completely shared among the other new entrants. As a result, a price-cut war occurred among these players in order to gain the market share.
The prices have been driven down to thin margins.In the past, PCCW (ex-Hong Kong Telecom) was the dominant player. With de-regulation started 1996, another 4 major telecommunication companies were gradually established in Hong Kong, namely New World Telecom, Hutchison Telecom, Wharf T&T and City Telecom (HK) Limited (CTI). All of them, except CTI, had strong financial support by their wealthy parent property-based companies. For example, Hutchison Telecom is backed by Hutchison-Whampoa, a company owned by Asia tycoon Li Ka-Shing.
With the Hong Kong advantage as the gateway to China, it attracted a number of external telecommunication carriers to put their foothold into Hong Kong to establish operations.In summary, the force of new barriers is not extremely high. Only a few new telecom carriers have been set up in Hong Kong in recent years to compete with the incumbent PCCW.
3.2.2 Competitive force of substitute productsStrictly speaking, there is no close substitute of telecommunications services that other industries are offering. There may be new technology development within telecommunication carriers to shift customers among themselves on new product features.
This force is rather weak in telecommunications industry. Also the industry is regulated.3.2.3 Power of suppliersAs I mentioned above, there is a over-capacity issue in telecommunications industry worldwide including Hong Kong, and this is well perceived by the corporate users. Thus the bargaining power of the market suppliers is weak. Customers have access to different operators and can easily choose any of the available operators or switch between the operators.3.
2.4 Power of buyersBuyers’ bargaining power in telecommunications industry is high especially if they are high volume users, or they are from reputable companies, or they are of strategic importance. In these cases, the buyers mostly can negotiate with preferential pricing rates and special service supports. It is quite easy for the customers to shift from one operator to another without much cost implications.3.2.5 Rivalry among competing sellers in the industryAmong the five competitive forces, the competition among rival firms is usually said to be the most powerful.
With the new establishment of local telecommunication carriers and the global and regional expansion from external players into Hong Kong market, the previous dominant player PCCW absolutely faced tense competition. The rivalry is high. Certainly PCCW needed to create more strategic initiatives in order to maintain its high market share.Telecommunications market in Hong Kong is at its maturity stage and the service demand is increasing at a slow growth rate. This intensifies the competition among the current providers to fight for businesses within same pool of key customers. In addition, there are different packages and options available for the customers.
There is no argument that the competition within the industry competitors is keen nowadays and this force is very strong to shape the current market situation. All the players need to craft a strategy in order to gain a stronger market position and to win a competitive edge over rivals. Also the technology factor is an important competitive consideration. Customers are likely to move from one network to another if new services are offered that suits their requirement.3.2.6 The sixth forceThe five forces model has developed since it was first proposed.
Porter suggested the incorporation of a sixth force, namely the influence of government and regulation. The inclusion of this force analysis, in my view, is absolutely relevant and applicable because telecommunications industry is much affected government and regulation policy. For example, in less developed countries, governments have put a tight control on the telecommunications policy and the market is still closed regulating growth. Country such as China got a big step in the market opening now with the granting of new licenses to new players such as China Netcom, China Unicom and China Mobile in addition to the incumbent China Telecom.However, government policy is still playing a critical role in Mainland China as a large portion of telecommunications services such as international data transmission is still not opened to competition. In Hong Kong, the government clearly plays a role in shaping the market situation. As discussed in the PESTEL analysis, it was under the de-regulation policy that newcomers were introduced in Hong Kong leading to high competition.
Without this policy, the telecommunications market in Hong Kong would remain as it was in a monopolistic business. A conclusion can be drawn that government factor and regulatory policies in telecommunications serves the prime role in influencing market behaviour by controlling the level of entry barriers and the openness of the market competition.3.2.
7 Challenges to the modelWith the adoption of the Five Forces model, a brief industry outlook can be summarized. However there are still some questions that can affect the industry:§ Will the current situation remain unchanged in the near future?§ How valid the Five Forces model can tell about the industry and what challenges this model will face in real world.This short paragraph intends to discuss the dynamics that give rise to market reshaping that make the industry outlook no longer agrees with the findings from the Five Forces model done at the outset.Industry is dynamic and government policy can change to cope with the situation. For example, a further relaxation on granting license may invite more competitors.
In the wake of new technologies such as VoIP and next generation networks, the current playing fields may be totally changes as the current regulations may not be possible to implement in such scenarios.Industry shuffles such as merger and acquisition can also reshape the market itself. With further consolidation of smaller carriers into larger ones, the industry may possibly become an oligopoly-type of market in long term. Further, there may be other world players who can enter into the market at a later stage through acquisitions or mergers, which could significantly change the competitive scenario.
In addition, the carriers do not respond passively to industry forces and they can try to change the rule of the game proactively. They can develop new products to revamp the market. Another example can be cited outside the telecommunications industry. The development of iPod product series by Apple Inc. created a new fad and fashion in entertainment type of audio equipment and successful re-gained market leadership. New technologies such as next generation networks provide the operators to provide much more innovative services with lesser cost. In addition, the technological advances allow them to provide the services using lower cost and more flexible infrastructure.Therefore, when using this model, it is necessary to take market change dynamics into consideration.
4 Chapter 4 – Literature ReviewThis chapter is a review on some literature materials that help establishing critical thinking on the research question and objectives. There are no past research papers with similar topic of this project. With extensive searching, three market analysis papers in telecommunications have been found with relevance. These papers are :City Telecom: Hong Kong’s Incumbent Killer? Facility-based Competitors Can Prosper By Ouida Taafe, Telecommunications Online IPTV Lessons From PCCW: A La Carte Pay-TV and ‘Telco Mentality’ by Ken Wieland, Telecommunications Online. Research Brief on Global Carriers in Asia/Pacific : What Will It Take to Succeed ? By Alayne Wong, Gartner Group, Publication Date on December, 2000 Survey of Best International NSPs, Asia/Pacific, 2005By Chee Eng and Kobita Desai, Gartner Group, Publication Date on November, 2005 Benchmarking Customer Services Technology : How companies are embracing their customersBy Stephen Morrell, Reuters Business Insight, Publication Date on September 2004In the rest of this chapter, these three papers will be reviewed separately and their approaches are discussed.
The relevance to the research and the limitations to borrow the data if any are also analysed.4.1 City Telecom: Hong Kong’s Incumbent Killer? Facility-based Competitors Can ProsperThis article brings out a critical strategy in a market dominated by an incumbent or dominated by established players. While price related strategy is one of effective ways to increase the presence in a market, there is a limit for succeeding using this strategy.
City Telecom entered the market of Ethernet based broadband services. The total number of households in Hong Kong island is 2.2 Million. Of this City Telecom serves about 600,000 households. It plans to capture market share of 80% over the next years.The paper points out that the initial strategy of City Telecom was to undercut PCCW in terms of price. However the company soon found out that there are only a segment of customers who are attracted by a cheaper price. Once this set of customers moved from PCCW, further growth in customers was not happening.
The company had to move to a different strategy.It cost the company an investment of about HK$330 per home. Subscriber pays US$15 a month for the ‘best value’ service and US$30 for the premium service. The company has about 20-30 customers for its premium customers. Instead of reducing the price for better adoption of the service, the company is adopting a new strategy of providing the customer with more value for the same price, thus ensuring that the price in the market does not decrease. City Telecom’s principle is to “deliver a Ferrari at a Honda price”.
The company provides free gifts such as washing machine and air conditioning unit with the subscription. It ties the gifts with contracts that are up to 3 years. This ensures that the company can retrieve the cost as well as get long term income from the customers.The key summary from this paper with respect to the research are the following:§ Lowering pricing can only churn cost sensitive customers from the competitors in a mature market§ To capture market share providing additional value without reducing price is a good strategy and found to work in Hong Kong market.§ While providing additional value, it is important to ensure that the possibility customers being churned are reduced at least till the period of time for recovering the cost from the customer.
4.2 IPTV Lessons from PCCW: A La Carte Pay-TV and ‘Telco Mentality’This paper treats another important aspect of competing in a mature market with strong players. The growth of the company from the traditional services keeps reducing as the services become commoditised and price reduction happens year on year.PCCW being a broadband service provider was faced with high degree of competition. The company found a way to differentiate in the market by offering sophisticated services, in this case IPTV.
One of the key issues in adoption of new service in a market is the affordability as the cost of rolling out the service is usually high. However PCCW ensured value by providing bundled TV channel packages that in effect translates to only US$1 per channel. Although the underlying cost to the customer is low, the monthly rate due to the packaging is about HK$138 to HK$388 per month which is a mini package.
Ted Hsiuing, Head of business development at Cascade – a subsidiary of PCC, operators can succeed if they can have clear service differentiation that prioritises quality of service and secure content delivery systems. PCCW also adopted a strategy of providing simple packages initially and gradually increasing the sophisticated services, increasing the value for the customers. This is clearly indicated by the impressive customer adoption of 700,000 subscribers for IPTV, which is the largest in the world.The key summary from this paper with respect to the research are the following:§ A key strategy in mature markets is differentiation through additional value added services.§ Value added services need to be packaged according to the potential of adoption of the customer and tailored to the market addressed.§ By increasing the sophistication of the market, it is possible to get more value from the customer.
4.3 Review on Global Carriers in Asia/Pacific: What Will It Take to Succeed?This research brief examines the regional scope for telecommunications carriers in Asia Pacific region. The researcher made an assumption that there were huge business potential in Asia Pacific region in the coming years and telecommunications carriers should enter quickly into this market to grasp these opportunities. It was mentioned that this positive environment was attributed by the policy under the Asian governments to open their telecoms markets.
Key milestones included the following :§ Singapore fully opened its market in April 2000§ India introduced more competition in 2002§ Hong Kong opened its international communications market§ Taiwan granted three new full telecom licenses and more was expected from China following its signing on CEPP and entry into the World Trade Organization(WTO).Deregulation created the silver lining. This region has generated US$ 190 billion in service revenue in 1999 and it was estimated that the annual growth rate could be at compound 12.3% in the next five years.
In the research, it was also mentioned the landscape in Asia Pacific was changing in the new millennium with the external effects of economic and regulatory factors. Challenges for these carriers in the region were that some markets were not yet full liberalized and service offerings in some markets were restricted.All in all, here we can find this research paper drew on the same conclusion under Five Forces Model analysis done in Chapter 2 that government was particularly crucial in shaping the market outlook in telecommunications industry and was the magic sixth force.
In the last part of the research, recommendations were provided on how to be successful in these markets. These global carriers should target market entry and infrastructure investment in key deregulated markets such as Australia, Singapore, Hong Kong, Taiwan, Japan and South Korea. They should seek out partners with infrastructure capacity to penetrate into the regional arena. They should also continue to work closely with regulatory authorities and local PTTs to understand local market dynamics. Last but not least, this paper suggested that brand building and quality of service would be the differentiating factors for these global carriers against price competition and therefore service level agreements should be introduced.With a comparison to this research paper, the main difference of this research is that it focuses on a region covering more countries.
This research paper limits to Hong Kong market but this research has a broader perspective on the whole Asia Pacific region. In addition, this research is designed to work on a list of recommendations for the global carriers that are interested to enter the Asia Pacific region and the ways to seize these golden opportunities. The recommendations include business strategies such as business partnership, marketing and selling strategy, regulatory compliance and new technology product development.The key conclusions of the reviewed paper are:§ It reconfirms the role of government and regulatory force in telecommunications market and the importance to work around with regulatory compliance.§ The need to take up new strategies instead of price-cut strategy was implied.§ The idea of non-pricing competition was identified as important. Elements such as quality of service and service levels were pinpointed.Some of the areas that need to be verified before applying it to the Hong Kong market are:§ The Gartner research was done in 2000.
Telecommunications industry was extremely dynamic and changes evolved with time. Some suggestions might not be updated and cannot fit in today’s competitive environment.§ The recommendations are based on Asia region covering different countries with obvious variances in economic, political and regulatory background. It needs to be validated whether the conclusions could be applied to Hong Kong alone.§ This paper did not capture voices from the telecommunications users.
The analysis was valid, however, it was unilaterally concluded that non-pricing factors have become more important. It is necessary to justify this statement by collecting opinions from the users. This substantiates the criticality of conducting a customer research in order to perform a more thorough analysis.4.4 Review on Survey of Best International NSPs, Asia/Pacific, 2005This paper appears as a scoring exercise by the telecoms users to find out the best telecom operators in this region under different product categories. NSP here refers to the Network Service Providers, which are also commonly known as telecoms carriers. Network managers of over 400 key corporations in the region were sent with questionnaire first and follow-up interviews were conducted to collect the ratings on their existing service providers that have been used in the past 12 months.
This paper was conducted in the third consecutive year. Scores were given on each criteria, including reliability, performance, support, installation and repairs, range of options and price with a scale from 5 to 1, which 5=excellent, 4=very good, 3=good, 2=fair, 1=poor. A complete survey document is attached in the Appendix for reference. (Source : Gartner Research, 1 November 2005)In the Best International leased lines, PCCW topped the survey. The average of the score for all carriers in this product type was 3.13 and PCCW had the highest overall score of 3.55. This all-round player obtained high scores of reliability and performance and good scores for support, installation and repairs.
However, how is it relevant to this research paper? The importance of the findings in this Gartner research again confirms the hypothesis that telecoms users tend to evaluate the performance of their suppliers on a broader scope of criteria including non-pricing elements such as service support, responsiveness, reliability etc. in addition to pricing. This also means that if a carrier wants to differentiate itself out, it has to perform well in both pricing and non-pricing competition.In the detailed survey findings, Gartner identified that PCCW offered the best value for money based on its balanced mix of high service quality and good pricing. Its service quality was also consistent and this was due to strong support capabilities. Some network managers said PCCW has made a strong effort to simplify and streamline its operational processes to improve its overall customer service and quality. All these remarks deliver clear messages on the importance of delivering quality service nowadays. The approach used for the reviewed paper is similar to that used for this research.
However, certain deviations should be paid considered:§ Gartner compared PCCW with other regional and global carriers. This research paper is to evaluate PCCW together with other Hong Kong-based carriers. Similar findings may be collected but have to be adjusted to reflect a true picture under the context of Hong Kong.§ The survey iwas large-scale with over 400 participants throughout the whole Asia region. With the limitation on time and resources for this research, scope of study within Hong Kong with invitation list no more than 60 participants and hence a smaller sample size.4.5 Review on Benchmarking Customer Services Technology: How companies are embracing their customersThis paper led a discussion on the recent trend of employing Customer Relationship Manager (CRM) technology to effectively manage customers.
CRM was now widely used in IT and Telecom industry, and the growth represented the importance of CRM in the business for customer retention and ultimately profitability. This is based on assumption that keeping existing customers under loyalty program is less costly than injecting resources to recruit new customers.In this paper, Reuters attempted to provide an insight of the role of CRM in today’s IT and Telecom World. The report enabled the reader to discover the new technologies and how they worked to shape the future. It also enabled the reader to compare the strategies with the competitors and benchmark against them, and also to capitalize on the opportunities developing through CRM. This paper provided significant ideas that should be employed by the telecoms carriers to consider using CRM tool to better manager the customer requirements. For example, a carrier can utilize CRM technology to manage customer database for accurate customer particular and service details such as address and invoice, to establish dedicated service hot-line to handle complaints for premium customers, to effectively conduct promotional activities, etc. This leads to a thought that CRM can be an initiative that the telecoms sector can develop in the future to further strengthen their customer service strategy.
The drawback of this study was its focus on European customers, which may have cultural variations when the same strategy is implemented in Hong Kong.The carrier has to accommodate this issue when the CRM is developed here. Nevertheless, this paper delivers valuable insight to the industry and provides a new area for the market players to consider shifting their focus to.In conclusion, after the reviews of the above 3 papers, some commonalities and relevance are found and can be applied to this research paper. The reviewed papers also discussed the underlying need of telecom operators to look at non-pricing aspects. However, two main limitations of these papers are that all of them were not conducted for Hong Kong market alone and none of them focused deeply into understanding more on customer service requirements by the users. These are key deficits are the focus areas of this research.5 Chapter 5 : Research Findings and AnalysisThe market research involved 39 responses. The full questionnaire is attached in the Appendix for reference. The questionnaire was designed with the purpose of gathering statistics in different areas. Each area is discussed under the following sub-topics and take an analysis on the findings and its implications to my research subject.5.1 Respondents’ company background analysisThe questionnaires were sent to diverse groups of companies. Data from Question 1 and 2 shows the recipients’ industry distribution and their average monthly spending.IndustryCompleted Questionnaires ReceivedBanking, Finance and Insurance8Trading and Manufacturing7Retail2Professional and Business Service7Logistics and Transportation5Media, IT and Telecommunications10Education0Total No. of Respondents39Only 11 respondents were willing to disclose their estimated monthly expenditures on telecommunications services. The spending range of the respondents were as following:§ Range of HK$ 40,000 – HK$ 70,000 – 4 respondents§ Range of HK$ 70,001 – HK$ 100,000 – 3 respondents§ Over HK$ 100,001 per month – 4 respondentsAlthough most of the respondents did not provide details of their spending, the available data indicated that the respondents were from all three target spending categories.5.2 Relevance of the RespondentsQuestion 3 and 4 were designed to check whether the respondents were relevant to the research. The basic assumptions were the following:§ Respondents had to be using any one kind of the telecoms services, ie. IDD voice, Internet Access, International data transmission, at least for 6 months.§ The primary service provider had to be one of the five key telecoms carriers in Hong Kong.Respondents are prompted to stop proceeding the questionnaire if they were not qualified to continue the questionnaire by checking “None of the Above”. From all the 39 responses, the respondents participated in the research claimed they were using at least one kind of the named telecoms services, and many of them even said they were using all three kinds. All of the respondents were using one of the five key telecoms carriers in Hong Kong as well.Their distribution is as follows:Telecoms Carriers In Hong KongNo. of respondents using its servicePCCW18New World Telecom8Wharf T&T3Hutchison Global Communications10CTI0Total39It showed that PCCW was the most preferred key telecoms carrier in Hong Kong among the respondents. 46% out of the 39 corporations chose to use PCCW services. The second and third preferred ones were Hutchison (26%) and New World Telecom (21%) respectively. Only a small percentage went to Wharf T&T and nil for CTI. This is a fair indication of the current market share of the players. It also indicates that the respondents represented the Hong Kong business customers to a good degree.5.3 Initial Findings and Further AnalysisUpon reviewing the pricing strategies and looking at the comparison with the research data, it likely gave an implication that pricing might not be as important as generally believed when a corporation chose the service provider. Some other factors should be playing roles in the selection criteria. Still it was too primitive to draw such conclusion. More data would be collected and analyzed in other questions to substantiate this idea.Question 5 was designed as a follow-up question to detect the respondents’ instant response on their satisfaction level towards their existing service provider. 25 respondents claimed they were satisfied with their current provider. 3 rated no comments and 11 said they were not satisfied. Not many respondents were willing to add comments on what areas they were not happy with. To summarize the limited responses, the key issues were usually related to the following:§ Poor after-sales service§ Consistently wrong billing§ Difficult to get hold of people for assistance§ Frequent service failures.Majority of the respondents who rated “not satisfied” were the existing users of New World Telecom, Wharf T&T and Hutchison Global Telecommunication.Data collected in Question 5 also provided an insight that when the corporation showed dissatisfaction on its key service provider, they tended to complain to non-pricing areas. The common issues of the dissatisfied areas were falling in the scope of customer service and quality related issues.This findings basically supported the hypothesis and argument in the research that non-pricing factors should be paid more attention to in nowadays’ competition, and these would become critical areas in the marketplace to win over rivals.5.3 Selection CriteriaQuestion 6 was a straight-forward question used to find out what aspects were treated as important in the selection criteria when the corporations decided to consume the services of the particular telecoms carrier.In addition, a number of “judgment” questions were listed under Question 7 in order to induce the respondents to show their real opinions on the importance compared between pricing and customer service.The Question 6 was a ranking type of question for the respondents to indicate the degree of importance for each aspect under their selection criteria. A score of “1” represented the most important and “7” represented the least important. By adding up all the scores from the 39 questionnaires, the aspect with the lowest score meant it was the most important and vice versa. A ranking ladder was then determined as below. Most Important Aspect Competitive PricingOffer good customer service supportNetwork and service reliabilityCustomized solutionsProduct FeaturesSalesmanship in telecoms knowledgeBeing a financially strong telecoms service carrier Least Important aspectThis data analysis told the fact that pricing was still dominant in the key corporations’ selection criteria. However it is important to note that “competitive” pricing is not identical to lowest pricing. From the perspective of the corporations, a pricing scheme could still be very “competitive” if the values and services received were well above the costs paid. Competitive pricing was not necessary the lowest pricing and it should be built in with values and qualities.The second highest ranking in the analysis was good customer service support. Indeed, in the statistics collected, the variation between rank 1 and rank 2 was very minor and it could be also true to say that both aspects were rated with more or less equally important. Middle ones were the network availability and product features more relating to technology and product development. The least important ones referred to salesmanship and company financial status.All these findings further verified the assumption that customer service and its quality was aggressively increasing its importance in today’s competition and these findings also confirmed the future direction of the telecoms carriers should be focusing in developing a winning customer service strategy. In Question 8, more information would be collected to understand what customer service deliverables were more anticipated by customers. Before going to Question 8, it was particularly crucial to see the findings under Question 7, which a series of sub-questions were asked to probe information as to how the corporations weighted between pricing and customer service.For 7a, this question requested to respond if competitive price was a crucial factor and we obtained all responses falling in the categories of “Agree” or “Strongly Agree”. No single response refuted the importance of pricing as a decision criterion. 40% Agree, 60% Strongly Agree For 7b, this question wanted to isolate the importance of “lowest” pricing and checked whether it could be the single, sufficient factor for the corporations to make decision. Results obviously showed that it was not adequate on its own to fulfill the selection criteria, and implied that the corporations looked for other factors in deciding the choice. 10% Agree, 70% Disagree, 20% Strongly DisagreeFor 7c, this question was obviously self-explanatory and the results fully supported the notion that customer service was a key element. Based on this findings, we would be more confident to propose strategic actions to key telecoms players in Hong Kong to look into the development of customer service in the subsequent Recommendation chapter. 50% Agree, 30% Strongly Agree, 20% Completely Agree For 7d, this question was designed to check how the corporation weighted between pricing and customer service, and the pricing sensitivity. 20% Disagree, 60% Agree, 20% Strongly Agree20% of the respondents showed that they were not willing to pay more even they could enjoy perceived better customer service. These respondents mainly were the users of Wharf T&T and New World Telecom who were still very price conscious. Majority of the respondents showed that they were willing to pay a bit more in order to enjoy better customer service. As to how much they were willing to pay the premium, the data collected showed that 85% checked the box of “10% or less over market price” and 15% checked “11%-30% over market price.” These findings indicated that even better service level was required, the corporations would not expect to pay this “additional” service at a very high level of premium. 10% more was generally accepted.For 7e, this question wanted to force the corporations to make a clear standpoint on how they viewed bad customer service. All of the respondents told us that if a bad customer service was clearly known to be provided, they would not be interested to use that provider’s services even though pricing was attractive. 80% Disagree, 20% Strongly DisagreeIn overall speaking, the analysis from this series of 5 questions agreed with the assumption that customer service should be considered as an increasingly important and decisive factor in the selection process. Pricing was still very critical without objection, but it could not offset the impact of non-pricing factors. These statistics provided a clear message to the industry players and should drive them to think carefully their future direction in crafting good customer service.5.4 Customer Service StrategyQuestion 8 was to check the important components a customer service strategy should include in order to meet customer requirements. Each respondent was asked to choose the major 4 customer service attributes that should be delivered by the telecoms carriers. Upon counting all data, the following level of importance is determined in order from 1 to 9, which 1 means the most important.Ranking1. Service level Agreement2. Customer Care personnel has sufficient knowledge to understand the problem3. Correct billing items and enhanced billing system4. Assign a dedicated service manager to resolve prolonged and complex problem5. Customer care personnel is easily accessible and communicated with6. Being active, going extra mile to solve problems7. Provide regular progress and updates on the status of service failures8. Language support of your choice in customer service centre9. Overall quality of network maintenance servicesThe data collected in this question was particularly useful to pinpoint the areas of focus a telecoms carrier should develop in working out its customer service strategy. This data is used to develop the recommendations in the subsequent chapters to advise what the telecoms carriers can do in each area to strengthen their strategy.Question 9 was a follow-up question to learn if the customers would like to receive a “tailor-made” strategy to meet their requirements and the importance of building such area. The findings showed clearly that a customized strategy was regarded as crucial and anticipated. 10% Not Important, 55% Important, 35% Fairly Important It leads to another question that what channels/methods the carriers can adopt to know about their users’ specific requirements. The telecoms carriers should not work on deliverables without a clear understanding and support from their users’ needs. This issue will be discussed and some recommendations would be given in the subsequent chapters.5.5 Continuous Improvement and Future TrendIt was clear that the customers are not entirely satisfied with PCCW. In reality, customer requirements are always changing and the telecoms carriers have to improve continuously so as to keep their customers.Question 10 and 11 were to check if the above statement was correct.In question 10, 90% of respondents told us that they expected to see continuous improvement from the existing provider and the rest 10% selected “No comment”. In question 11, 80% agreed that continuous improvement actions were critical when they conducted service review session with their supplier. And the rest 20% selected “No comment”.There is no doubt that the telecoms carriers should be putting more resources in building a solid and customer-focused improvement plan to maintain customer loyalty. It is a process that the telecoms carriers need to drive internal resources to support all related developments.Lastly, Question 12 was designed to check if developing customer service the future road. 100% respondents agreed that telecoms carriers should be working more on customer service deliverables than drilling into price wars in the long run. Results from this question provided strong evidence to support the theme of this research paper that customer service is going to be the battlefield tomorrow.The open-ended Question 13 and 14 were originally put in to allow the respondents to provide more inputs and comments regarding their experience, good or bad, with the existing service providers. However, no respondent shared his particular experiences.5.6 Additional analysisReviewing the current pricing strategy of the different players in the market, the following are the key factors were found:§ PCCW offered most of the services at the highest price among the five Hong Kong market players. However, the data showed that the majority of the respondents tended to use it as the primary provider.§ Services offered by Hutchison and New World Telecom was a bit less expensive than PCCW’s.§ Wharf T&T and CTI were notorious in the market to play with pricing cutting games but in reality they got the least support from the key corporations. CTI claimed they were offering the lowest prices at all times but had the lowest market share.5.7 Summary of findingsThe following is the summary of the findings:§ Competitive pricing is the most critical factor for the customer in choosing a service§ 60% of respondents strongly agreed that competitive pricing is a crucial factor.§ 90% disagreed on using price as a single metrics for choosing a service provider. 100% of respondents would not consider a company if the customer service is not good.§ 100% of respondents agreed on customer service being an important factor in choosing a service provider.§ 80% of the respondents were willing to pay more for better customer service.§ 85% of respondents were willing to pay upto 10% more for better customer service.§ Service Level Agreements were the most important that the respondents expected from the service provider.§ 64% of the respondents were satisfied with the services offered by their current service provider. 6 ConclusionCombining the questionnaire research findings together with the market insights from literature review of the industrial papers and the environmental analysis supported by theoretical frameworks, the following key conclusions can be drawn:-§ Based on the questionnaire research, pricing is still one of the key factors in the selection criteria of the corporations for their primary service provider. But the lowest pricing offering does not warrant any preference by the corporations Pricing should be competitive (reiterated that not necessary the lowest) in the sense that the services are well received with values and qualities.§ Better customer service offering is an equally important factor in the selection criteria. Majority of corporations show their interest to pay even a bit higher if better service can be received. The premium level is around 10% more than the average market price.§ With no more profit margins to continue endless throat-cut price war, the future direction for these five key carriers should be devising a winning customer service strategy.§ List of important customer service attributes were identified in the questionnaire research. This is valid input for the market players to craft the deliverables that are definitely needed by customers.§ Corporations are more exciting to see a tailor-made customer service strategy to meet their specific requirements.§ Telecoms carriers have to commit continuous improvements if they expect the existing customers stay loyal. Based on the research, it can be concluded that:Customers are now fundamentally influencing the dynamics of the marketplace. Their concerns and voices are much more attended than before. The distinguishing feature of this new marketplace is that customers become a new source of value creation. In the past, service provider offered their services based on its own product development plan without the need of taking care of customer requirements. Some products might not have true values and benefits to customers. However, corporations were forced to accept. With an increasingly strong customer force, the service providers have to reconsider what their customers really want in the market and then they put in resources to develop products with cost effectiveness and value maximization to the market. 7 RecommendationThis chapter goes into the recommendations on real actions that should be taken by the Hong Kong telecoms carriers in the whole process of developing such strategy. 7.1 Developing Product StrategyThe research provides insight into the type of products and service categories that can be used by service providers in Hong Kong market. While most of the operators are in the basic voice services now that has limited pricing potential, they can move into products with additional capability for achieving better profitability. Value added services (VAS) is a way to achieve this. However new products using new technologies enable operators to rollout sophisticated services with higher pricing potential.However combining customer service associated with the service is another good way to differentiate and command a premium. As the research pointed out, customers are willing to provide additional price for products if service quality is assured. This can be rolled out as separate products for specific markets segments.As found in the literature review, this can be used as a very effective strategy to gain market share without reducing the price in the market. 7.2 Develop Strategy IntentStrategic objectives give the members of a telecoms carrier a sense of purpose, a sense of direction and a focus. Thus, a mission statement needs to be precise, memorable and communicational. In this sense, New World Telecom (NWT) does a quite good job. With reference to its Customer Charter attached in the Appendix, it has already developed its mission as “As a next generation IP and telecom service provider, NWT delivers customer-focused, innovative and quality communication solutions, digital media and managed services to create unparalleled value for business and personal customers in Hong Kong, Greater China and beyond.” It is recommended other telecoms carriers to follow this practice as well.7.3 Evaluate Company strength and weaknessA telecoms carrier has to clearly understand its strength and weakness, then it can fully utilize the resources with maximum yields. These can be identified by two exercises. First is to conduct the SWOT analysis. List all the strength and weakness that it has, then to check how to further strengthen the strong points to build the foundation of the core competencies. Also it should review ways to improve the weak points to minimize the inefficient areas. Secondly, it should use the McKinsey’s 7S framework to carry out an internal audit. Both exercises serve to identify where the resources investment is required and how the foundation of building competence-based strategy is formed.7.4 Identify Competitive AdvantagesIn relation to a telecoms carrier, competitive advantages can refer to any of the following such as strong financial stability, talented human resources like marketing and technical expertise, advanced billing system, full automation, low network cost structure, long experience and reputation in the industry, government support and protection, brand name, customer relationships and intellectual leadership.With the information and analysis on hand, a carrier can start to allocate resources to build the skeleton of the customer service strategy that fully utilizes the existing competitive advantages.7.5 Collect Customer OpinionsThere are several channels to obtain customer opinions. First can be through the salespersons who assume as the key front-line staff to interface with the customers. Monthly internal review meeting with the sale teams is thus highly recommended so that regular customer issues can be known by the management and be addressed properly.Customer service team can be another source of information. Therefore, regular meetings with this group of people are encouraged.An official way to collect official customer opinion can be to conduct a kind of ‘voice of customer’ survey. It can be organized by market research department working with an external research house, and can be done bi-annually or annually depending on budget. The survey is used to understand the customer experience with the carrier – from the point of initial contact throughout the use of the telecoms services. The information gathered can be very useful to identify the areas needed immediate improvements, to monitor the effectiveness of the efforts and to help the carrier to direct future focuses.7.6 Build “sustainable’ customer service strategyIn the questionnaire research, we have collected results on the critical elements a customer is expected to receive from a customer service strategy.The following recommendations are deduced based on the findings under 5.4 in Chapter 5: Research Findings and Analysis in response to the most desired features in a customer service strategy. – Provide service assurance guarantee. A service level agreement can be given to few key customers. This agreement is to lay down all the service commitments that the carrier is going to offer, including guaranteed % of service availability (e.g. 99.95% availability), rebate system on serious outages, service level support by technical helpdesk, escalation structure on prolonged outages, etc. This is to warrant a comfort level that the key customers can enjoy from these commitments with resources invested by the carrier onto them. – Create best billing practices. Investigation with outsourced billing software company is suggested to look into recent features and the possibility to upgrade them into the current billing system. The benefits of these are to increase the accuracy of bill amounts, to enhance the capability of customized and itemized billing features, etc. to meet demanding customer requirements. – Dedicated account management team for premium customers. Many key global/regional telecom carriers develop virtual account teams including account/sales manager, technical consultant and a customer relationship manager to serve the key customers. Hong Kong telecoms carriers can borrow this idea to increase customer satisfaction level. The role of customer relationship manager is to take responsibility on the overall customer satisfaction and to act as the single point of contact on all after-sales issues such as service degradation or outage, project schedule delay, slow response from billing and technical centre. This is exactly very welcomed by finance and banking sector that requires high service stability and quick response time in repairing the network. On top of the creation of a role of customer relationship manager, it is also recommended to offer a dedicated 24 x 7 customer hotline for premium customers to easily get access into the customer service team and the technical professionals in case of severe service outages.7.7 Conduct customer satisfaction benchmarking researchA customer satisfaction benchmarking research measured against the industry norms is highly recommended. The objectives are to evaluate the performance of the concerned carrier relative to the competition on specific areas in customer service perspectives, to identify strengths and weaknesses of the concerned carrier, to establish a benchmark standard against the competition so as to assist the concerned carrier in achieving results on key attributes, to provide evidence about the concerned carrier’s performance from customers and to highlight areas of improvement for future years After collecting all the customer feedbacks, the carrier can be able to work out a continuous improvement plan to strength the strong areas and to improve the below-average areas. Implement CRM projectCustomer Relationship Management tool is very commonly used nowadays in telecoms world as discussed in the Literature Review. Perceived advantages of adopting a CRM system are to enable marketing departments to identify and target their best customers, to manage marketing campaigns with clear goals and objectives, and to generate quality leads sale team. It can also improve telesales, account, and sales management with customer profiles, statistics and buying behavior data. In overall speaking, customer satisfaction level can be greatly enhanced. Finally in this chapter, it is worthwhile to reiterate again that the success of a customer service strategy relies on the very fundamental principles. As summarized by Lloyd c. Finch (1984), these are “Provide extra service, Take Ownership, Build Customer Relationships, Know Your Competition, Be Proactive with Customers, Build Teamwork to Improve Customer Service…..”. Competitive Strategies that can be used by the service providersMichael Porter has argued that there are three generic competitive strategies, which are overall cost leadership, differentiation, and market focus. Cost leadership requires efficient-scale facilities, tight cost and overhead control. Certainly, having a low-cost position provides a defense against competition. Implementing a low-cost strategy usually requires high capital investment in state-of-the-art equipment and critically aggressive pricing. In the today telecoms industry, cost leadership is very difficult to achieve as the price has almost been driven to the bottom-line while the network costs are difficult to reduce further. It is absolutely not an appropriate strategy to go for. Market focus strategy is built around the idea of serving a particular target market very well by addressing the specific needs in a limited pool of customers. Owing to the fact that the concerned telecoms services ie. IDD voice, internet access and international data communications, are all basic telecoms requirements in today’s business world. The target market is all kinds of corporations in operation. It is unrealistic to slice out a particular market sector to focus and build different set of special products. There may not be such market potential with niche product demands and even there occurs, there is a doubt whether it is a profitable business to drill in. Focus strategy is also not applicable. The essence of differentiation strategy lies in creating a service that is perceived as being unique. As James A. Fitzsimmons & Mona J. Fitzsimmons (1994) pointed out, “a differentiation strategy does not ignore costs, but the primary thrust of the strategy lies in creating customer loyalty.” Differentiation strategy encourages dedication to customer needs but at the same time requires flexibility and innovativeness to respond to their dynamic requirements. In the earlier part of this chapter, we have also already come to a point that crafting a customer service strategy is now the factor to win. Thus differentiation looks to be a more desirable strategy for today environment Lastly, in developing a successful, differentiated customer service strategy, I would like to discuss and highlight the “Key Success Factors (KSF)” that the telecoms carriers has to consider and build its strengths onto them in order to remain competitive in the market. 7.7.1 KSF 1 : Understanding Customer ExpectationsWhile the role of customers has changed in recent years, the service providers have to follow the market trend to understand what customers are now requiring in order to create an effective customer service strategy to cope with the demands. In today environment, customers sit at the top. Organizations that are not willing to meet these customer expectations suffer the market consequences and lose competitive advantage. 7.7.2 KSF 2 : Developing Competence-Based strategy and Value CreationCompetence-based strategy is the part of the overall differentiation strategy in order to maintain a set of core competencies that creates value for the customers. The main focus of this part is firstly to evaluate the internal strength and weakness of the telecom carrier itself and devise the best approach to meet external market dynamics. In working out with a competence strategy in telecoms market, the telecoms carriers should identify their own competencies by writing down an overall list of their competencies that they possess and then find out the most important ones. Then, they should start analysis on the external dynamic threats and focus on their core competencies to fight against these threats. To achieve this, the telecoms carriers have to identify which competencies should be further developed by when and how. They can list a portfolio, say, of 25 competencies and shortlist five core ones to develop. As Anders Drejer (2002) pointed out, “ firms may concentrate their scarce resources on only a few – perhaps five to six – core competencies ….. it would be natural to focus on firm-specific core competencies and define other competencies as support competencies.” Finally, the key approach is to link customer demands to the competencies. The customer focus strategy should create value to the customers and thus what you have developed is to address customer concerns. However, telecoms market is dynamic and the telecom carriers should be able to edit and amend the competencies list to cope with the changes. 7.7.3 KSF 3 :Managing long-term customer relationshipWhen pursued relentlessly as a goal, customer service can be an important source of competitive advantage. If every customer contact with the telecoms carriers was positive, not only would these customers remain as members of a loyal customer base, but they would also tell others and expand the size of that base. The cost of recruiting new customer is far more higher that keeping a loyal customer. This arises a new concept of Customer Relationship Management (CRM) in recent years that I have discussed in the literature review. CRM means to operate an organization with a customer-centered focus that strategically tries to build long-lasting relationships and add value to customers. The utilization of ‘CRM” in pursuit of competitive advantage is rapidly evolving in IT & Telecoms industry with the support of information technology that allows organizations to maintain close and accurate communication with customers as well as to gather and utilize data regarding their needs and desires. Some advices will be discussed in the next chapter for the carrier to make use of this new technology to build the strength. 7.7.4 KSF 4 : Controlling quality and Providing Continuous ImprovementIt is very critical to develop a customer service strategy based on quality deliverables. Delivering a consistent service quality level is challenging when it comes to involving human beings to deliver the services. Therefore, requirement on consistency means to have reinforcement and motivation to the staff to offer their best at all times. This should include training, compensation and performance monitoring.In addition, customer demands are dynamic and changing from time to time.Thus, “the search for quality is closely tied to the emphasis on continuous improvement,” mentioned by Schermerhorn (2000). Continuous improvement process involves always searching for new ways to improve operations quality and performance. This can be developed together with the benchmarking exercise. More focus will be made in this area in the Recommendation chapter. There is no intention here to limit the Key Success Factors to only four aspects. More should be developed or the existing ones should be edited when the market environment and customer requirements changes. In order to build a successful, differentiated customer service strategy, the telecoms carriers have to tie it closely to market dynamics.8 ReflectionReviewing the process of writing this research paper, one of the problems that I had was how to define a telecoms carrier said to be based in Hong Kong. In my initial thought, I intended to include all locally-established telecom companies plus all regional or global carriers that had its offices and operations in the lands of Hong Kong. However, this would likely involve over 100 so-called telecoms service providers or carriers. Even those incorporated in Hong Kong, there were a lot of telecoms related companies calling themselves a carrier but they were just with small-scale operations focused providing in 1 to 2 telecoms services. Especially with the increasing popularity of internet services, a number of local ISPs (Internet Service Providers) entered the market and made up a large number of telecoms carriers (what they called themselves). In addition, the definition of a telecom carriers “located” in Hong Kong becomes blurred with the globalization of the telecoms carriers from other continents extending their business into Hong Kong. There were some across-the-continent merger and acquisition happened in the international arena and this also added complexity to clearly identify the country origin of a carrier. This mix and mess situation has come to Hong Kong as well. Ultimately, in order to focus my research in a better controlled scope with given resources and time constraints, I decided to study the five key Hong Kong-incorporated carriers only under the criteria of their scale of operation, their international exposure of service offering and their background and industry status in Hong Kong telecommunications history. In the final stage of finishing this paper, I appreciated my earlier consideration to have a focus that helped me to make my analysis, draw my conclusions and develop recommendations in a more sensible manner. Another problem that I experienced was the low response rate by the respondents in the very initial stage. Less than 10 responses were received in the first 2 months probably because they were too busy or just ignored my requests. I understood that without sufficient pool of respondents, my analysis would not be valid and sound. Paying efforts in conducting lobbying and more explanations to the targeted interviewees, ultimately over 30 responses were received. However, it already used up more time than I originally planned in the process of data collection. The ethics issue appeared as well. I have been working in this industry over 12 years in Hong Kong and have known well a number of senior management from major telecoms users such as finance and banking, IT and Media, etc. There was a role conflict for me in the job and in this MBA course. I have invited some potential interviewees on phone but I got a feeling that they had hesitation to support me. I thought they might find inappropriate to release information to a person that was working in a telecoms carriers and that might cause issue on commercial confidentiality, especially they knew they had to answer questions concern adjustments on quality and pricing issues. Therefore, I had to put great effort to explain my objectives of this research and reiterated that the data collected was solely for use in my academic program. Even though the data was ultimately collected, the population was not great that imposed limitation to generalize the statistics and to apply them on the whole telecoms industry. A lot of assumptions have been made in the upfront. A critical one was the assumption that the interviewees would at least consume services from one of the five telecoms service providers and their telecom expenditure was significant. Another assumption was that they already got interest to seek for better customer service in the future more than receiving an ever-decreasing pricing scheme. I also assumed that their comments should be well representing from their business sectors. With all these assumptions, then my analysis could look meaningful and relevant to the industry. Another real challenge for me was how to apply research findings into a theoretical discussion but at the same time the results were valid to real business situation. Thus I pre-defined the project skeleton under several management theories/concepts that I intended to use under the Theory Review chapter. Then I conducted all the business analysis and discussions associating with the academic concepts so as to make my final conclusion and recommendations with strong theoretical support. Without doing in such balanced approach, this paper would easily run into a pure business review with deficit of academic elements. In overall speaking, I would say my project objectives were well defined and the findings collected could be able to fulfill them. For the key research questions that mentioned in the Introduction, data could be gathered via different sources to provide a response and lead to deeper thinking to each one. Finally there are recommendations below for improving the project if it would be planned once again. First, I would enlarge the scope of study to the whole Greater China region including Hong Kong, Taiwan and Mainland China. To extend it to whole Asia is too aggressive but to Greater China should be a manageable approach. In business world, these 3 locations are commonly grouped under a Greater China cluster because they were perceived with similar business models and market potential. Thus it would be valid to make an analysis on the whole region. But certainly, more time and planning work has to be done in advance. Secondly, I would forecast five major risks and issues that might expect to happen during the whole process and developed steps to minimize those risks at an initial stage. I should also ask myself in the very beginning what the risks would imply concerning the quality of this research paper. For example, the low respondent rate should be improved if I took more time to call each potential interviewee beforehand to explain my purpose and get their earlier consent to support me. It would be more difficult to handle the situation when the time the person already rejected me. This would also help control the overall time to complete the paper. 9 References(2006)Hong Kong – Key statistics, telecom market and regulatory overviews, Research and MarketsAu, M.H. (2006) Deregulation for Fixed-Mobile Convergence, Telecom Infotech ForumTaafe, O. (2005) City Telecom: Hong Kong’s Incumbent Killer? Facility-based Competitors Can Prosper, Telecommunications OnlineWieland, K. (2006) IPTV Lessons From PCCW: A La Carte Pay-TV and ‘Telco Mentality’ by Ken Wieland, Telecommunications Online.Lau, D.K. (2006) IPTV in Hong Kong – Current status and regulatory regime, ITUAu, M.H.(2006) Next generation network: The enabling regulatory environment, Office of Telecommunications Authority, Hong KongAu, M.H.(2007) Paving the way for Hong Kong to become an information society, Communication Association of Hong KongAu, M.H. (2007) Universal service that evolves with time, Office of Telecommunications Authority, Hong KongHKTUG (2003), HKTUG’s response to telecommunications amendment bill 2002, Hong Kong Telecommunication Users GroupWong,A. (2000) Research Brief on Global Carriers in Asia/Pacific : What Will It Take to Succeed ?, Gartner Group, Eng,C. ( 2005) Desai.K,Survey of Best International NSPs, Asia/Pacific, 2005, Gartner Group, Morrell,S. (2004) Benchmarking Customer Services Technology : How companies are embracing their customers, Reuters Business Insight Kwan, S. M. (2004) Regulation of new technologies: IP telephony and next generation networks.Einhorn, B. (2000) Tough calls for this Hong Kong telecom player, www.businessweek.com.Invest Hong Kong. ( 2007)Segal, P. (1999) Telecom competition widens in Hong Kong, www.iht.com/businessPeople’s Daily (2000) Competition fills HK telecom with vitality, www.english.peoplesdaily.cnTDC Trade (2006), Profiles of Hong Kong major service industries, Hong Kong Trade Development Council, www.tdctrade.com/main 10 Appendix A – QuestionnaireDate of Completion : Name of Interviewee : Name of Company : 1. What is the major business area of your company? Banking, Finance and Insurance Trading and Manufacturing Retail Professional and Business Service Logistics and Transportation Media, IT and Telecommunications Logistics and Transportation Education Others 2. What is the estimated monthly expenditure on telecoms service (including IDD voice, Internet Access and/or International data transmission service) out of your Hong Kong office? (Optional) HK$ 10,000 or Less HK$ 10,001 to HK$ 40,000 HK$ 40,001 to HK$ 70,000 HK$ 70,001 to HK$ 100,000 HK$ 100,001 or More 3. What kind of telecoms service did you consume during the past 6 months from your existing telecoms service carrier? (Can Ö more than one service, if appropriate) IDD Voice Internet Access Service International Data Transmission Service All of the above None of the above (THE QUESTIONNAIRE FOR YOU IS NOW COMPLETED. THANK YOU FOR YOUR TIME!) 4. Among your choice(s) in Question 3, which telecoms service carrier in Hong Kong is your primary service provider in terms of monthly expenditure and service profile? (Please Ö the major one only) PCCW New World Telecom Wharf T&T Hutchison Global Telecomunications CTI None of the above (THE QUESTIONNAIRE FOR YOU IS NOW COMPLETED. THANK YOU FOR YOUR TIME!) 5. Are you satisfied with the services currently offered by your primary telecom service carrier as you selected in Question 4. Yes No (If No, what area you do not happy with _____________________) No Comment 6. What were the drivers for your company in choosing the existing primary telecoms service carrier. Please rank all of the following items according to the degree of importance in your selection criteria. (1 is the most important and 7 is the less important) Competitive priceNetwork and service reliabilityBeing a financially strong telecoms service carrierOffer good customer service supportSalesmanship in telecoms knowledgeCustomized solutionsProduct featuresOthers (Please specify) 7. For the following questions, please write the appropriate number for each to indicate your level of agreement with these statements? 1. Completely Disagree2. Strongly Disagree3. Disagree4. Agree5. Strongly Agree6. Completely Agree a. “Competitive price is a crucial factor in the selection criteria on the telecoms carrier” b. “If the price offering from any telecoms carrier is the lowest, I will opt for using its service in regardless of other factors” c. “Customer service from the service carriers is now a decisive factor now for my company to consider using their services” d. “If a service can offer better customer service than its competitor, I will be willing to pay a higher premium on pricing” If you choose Agree, Strongly Agree or Completely Agree, please indicate the highest level of premium above average market price you are willing to pay. 10% or Less over market price 11% to 30% over market price 31% to 50% over market price 51% to 70% over market price 71% or More over market price e. “If a carrier can offer competitive price but is notorious in customer service support, I still will be considering to use its service purely of the attractive price” 8. What major attributes are you expecting from a telecoms carrier in terms of Customer Service? (Can Ö the major 4) Service level guarantee Language support of your choice in customer service centre Customer care personnel is easily accessible and communicated with Customer care personnel has sufficient knowledge to understand your problem Provide regular progress and updates on the status of service failures Being active, going extra mile to solve problems Correct billing items and enhanced billing system Assign a dedicated service manager to resolve prolonged and complex problems Overall quality of network maintenance services Others (Please specify ) 9. How important do you regard a tailor-made customer service offering (particularly designed by telecoms carrier to meet your specific needs) can positively influence your selection on purchasing that telecoms carrier’s services? Very Important Fairly Important Important Not Important Not Fairly Important Not Very Important 10. Do you expect to see a continuous improvement plan offered by a telecom carrier on enhancing its customer service support when you stay with that carrier’s services? Yes No No comment 11. Is this continuous improvement effort important in your service and quality review with the existing telecoms carrier and your consideration to continue employ their services or not? Yes No No comment 12. Do you agree the future direction of telecoms carriers in Hong Kong should be spending more resources in developing better customer service strategy instead of focusing in price cutting if they want to keep loyal customers and expand the base? Yes No No comment 13. Can you quote one good experience in customer service support that you have ever enjoyed from your existing telecoms carrier? (Optional) 14. Can you quote one bad experience in customer service support that you have received from your existing telecoms carrier? (Optional)11 Appendix B- Main Theories and Concepts ReviewIdeas learnt from various management theories and concepts are incorporated into this project paper especially in the following chapters concerning telecoms environmental analysis, conclusions and recommendations. The following are the key concepts: 11.1 BenchmarkingBenchmarking aims to establish ‘best practice’ by making comparisons among organizations. It is a means of setting standards as well as a tool to monitor company performance against what is being achieved by others. 11.2 Core CompetenciesCore competencies are a distinctive set of skills and technologies that enables an organization to provide particular benefits to customers and deliver competitive advantages. These skills are special strengths that the organization does exceptionally outstanding in comparison with its competitors. 11.3 Competitive AdvantagesCompetitive advantages refer to the significant advantages that an organization possesses over its competitors. They allow an organization to deal with market and environmental forces and add more values than its rivals in the same market. 11.4 Key Success FactorsThese refer to the resources, skills and competencies of an organization in the industry that are essential to deliver success in the market. 11.5 McKinsey 7-S FrameworkMcKinsey 7-S Framework shows the inter-relationship between various organizational variables. They are strategy, organization structure, management style, operational systems, staff, corporate strengths or skills, which are all influenced by cultural ‘shared’ values. This framework is an internal strategic audit. As a checklist, it enables the strategy-maker to understand how the organization functions and hence to begin to identify where strengths and weaknesses are to be found. It also provides the foundation for change programmes. 11.6 Michael Porter’s Five Forces ModelMichael Porter offers the five forces model as a way of adding sophistication to this analysis of the environment, with a focus on the following forces: Industry competitors – intensity of rivalry among organizationsNew entrants – threats of new competitors entering the marketSuppliers – bargaining power of suppliersCustomers – bargaining power of buyersSubstitutes – threats of substitute products or services 220.127.116.11 New EntrantsThreat of potentialnew competitors 18.104.22.168 SuppliersBargaining powerof suppliers22.214.171.124 CustomersBargaining powerof buyers Diagram 1 : Porter’s Model of Five Strategic ForcesSOURCE : Developed from Michael E. Porter, Competitive Strategy (New York : Free Press, 1980)From Porter’s perspective, the foundations for any successful strategy rest with a clear understanding of these competitive environmental forces. Porter called this “industry structure”. By systematically analyzing these interactions and impacts of these five forces, Porter believes that strategies can be chosen to give the organization a competitive advantage. 11.7 Michael Porter’s Competitive Forces StrategyA strategy of competitive advantage through differentiation, cost leadership or a combined strategy concentrated on a narrow target market was developed in the 1980s by Michael Porter based on the idea of five competitive forces in an organization’s environment.§ Differentiation – where the organization’s resources and attention are directed toward distinguishing its products from those of the competition.§ Cost Leadership – where the organization’s resources and attention are directed toward minimizing costs to operate more efficiently than the competition§ Focused differentiation – where the organization concentrates on one special market segment and tries to offer customers in that segment a unique product§ Focused cost leadership – where the organization concentrates on one special market segment and tries in that segment to be the provider with lower costs 11.8 PESTEL AnalysisAn organization’s marketing environment consists of all the factors that are external to its own operating system. These factors can be collected into categories, referred to as PESTEL factors, which are Political, Economic, Social, Technological, Legal and Environmental. The analysis of these external influences can offer assistance on the marketing audit on the overall marketplace so that the organization can react to survive. 11.9 Relationship MarketingLen Berry’s (1993) pioneering an article on relationship marketing suggested that the development and nurturing of relationships with customers represented a business strategy with considerable potential for long-term success. However, the relationship has to be established and worked on and it does not usually happen by chance. 11.10 Strategic IntentStrategic Intent of an organization implies a particular point of view about the long-term market or competitive position that an organization hopes to build over the coming years. It conveys a sense of direction about this unique point of view about the competitive future. It also conveys a sense of discovery where strategic Intent has an emotional edge and with a goal that employees can perceive. It also implies a sense of destiny with a goal that commands the respect and with a destination that must be worthwhile by the employees. 11.11 SWOT AnalysisSWOT Analysis intends to get knowledge and understanding of Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T). It is a 2-step approach. It highlights internal strengths and weaknesses from the customers’ point of view as they relate to external opportunities and threats.