Verizon acquisition
The deal where Verizon communications and Vodafone joined ventures to create Verizon wireless had a huge impact in improving the sustainability of resources as well as improving performance at Verizon. After the deal, Verizon owned 100% of what became known as Verizon Wireless allowing it to retain all the cash flow that was operated from its businesses (Case study 2). Through the deal, Verizon was able to better meet the needs of its customer as it was able to invest in different developing technologies meant to increase customer satisfaction. There was also an accretive impact that immediately pushed earnings to 10% after the deal was finalized (Case study 2). The deal gave Verizon the freedom to take advantage of opportunities promoting the company’s growth as soon as they presented themselves as a result of financial flexibility created. One of the opportunities is an unexplored market where a third of Verizon customers did not have cell phones and this allowed the company to benefit greatly from the new market created.
Verizon wireless was in a better position to use its resources well and also sustain its resources as the deal allowed Verizon to take advantage of developing trends in its target market. Through Verizon wireless, the company will be able to enter the digital cargo market and use its resources well to benefit from this new venture. Through digital cargo, Verizon will be able to create value not only for the wireless features but all other aspects on the company. It is estimated that video communication will account for about 70% of all the consumer traffic shared across the internet this year (Case study 2). At present, those providing services that deal with digital content find it difficult to operate via broadband when moving their content. However, with Verizon’s experience and the huge amount of wireless connections in its control, the company will be in a better position to use its resources to offer great performance and become a dominant force in the digital cargo industry.
Through the acquisition, Verizon was able to meet the two tests of broad scope namely product cost and product differentiation. Due to the services and products that Verizon wireless offers, it has grown to a level where it is a dominant leader in the wireless industry. Verizon wireless has taken up different ventures to ensure that its products and services are unique and better suited to meeting the customers’ needs. The company has embraced changes in technology and uses data networks and other new technology to ensure that customers across different demographics in its area of operation have access to its products. Through the acquisition, Verizon is able to offer unique products and services to its customer therefore meeting the product differentiation part of the test for broad scope (Case study 2).
In the case of product cost, the acquisition has enabled Verizon to offer a higher volume of products and services at a relatively low cost. At Verizon, only one percent, or even lower, out of the 103 million Verizon customers disconnect their services (Case study 2). The customer loyalty is as a result of the satisfaction with the high quality products and services that the company offers. Although the venture is expected to slightly increase the cost of various products and services, the customers understand that this is expected if they intended to enjoy the high quality products and services they enjoy from Verizon. The price increase is less likely to affect the demand for Verizon wireless products or push them to the competitors. The acquisition will therefore allow Verizon to control cost for its products in a way that is acceptable to customers as well as beneficial to the company when it comes to boosting its revenue (Lecture 1).
If a company is to be able to maintain its dominance it must ensure that it uses its resources to establish a different type of product and services that meet the target customers needs and still be able to sustain its dominance. Through the acquisition Verizon was able to offer better value to its customers (Case study 2). By offering greater value, Verizon is able to charge its customers high unit prices in return for higher efficiency especially in lowering the cost of average units. By offering high quality and unique products and services, customers are satisfied with Verizon and are less likely to move to shift their alliance to the competition or reduce their demand for Verizon products because of a slight cost increase. The venture has therefore assisted Verizon in creating value for its products and services by allowing proper utilization of the resources available (Case study 2).
The law of demand suggests that lower prices encourage people to buy more while high prices have the opposite effect on demand for products. A price drop is therefore expected in situations where the demand is elastic and this often results to an increment in the total revenue. In the case of Verizon, a drop in demand, which is highly unlikely, will have little impact on the capital since the number of units sold through the venture will make up for the reduction in demand. The venture has also generated different platforms for the company to generate revenue and 10 percent increase in cost for products and services will not lead to them becoming elastic. The value created through the venture is so significant that it would take a 75 percent increase in price to negatively affect the value for Verizon products and services (Case study 2).
References
Case study 2
Lecture 1
