Western Union – Strategic Analysis Case Study Solution
The Western Union is an American Based company operating in the financial services and communication industry. The organization is headquartered in Denver, Colorado and has market share of almost 12% in the year 2019. Moreover, the organization had a market capitalization of US 670 billion dollars in the year 2019.
The organization experienced intense competition form the emergence of various U.S digital technologies which includes Fintech and Libra which ensured delays in the transfer process is avoided and eliminate the fees involved with internationals transactions. On the other hand, the organization also experienced decline in revenue and profitability as a result of decrease in global average fess associated with international transfers to 7% from 10%.
Porter Five Forces Framework
Bargaining Power of Supplier: The bargaining power of supplier appears to be low considering, there are various suppliers in the industry. The major suppliers of the industry includes customer deposits in the financial service industry, professional service, Print Media, Electronic instruments and control, software and programming industry i.e. IT suppliers (CSIMarket, 2020). These suppliers have the power to reduce the profits of the organization considering, it is possible for them to charge higher prices.
Bargaining Power of Customer:The bargaining power of customer appears to be high as there are various payment processing options, which includes PayPal, Due, Stripe, Pay line, Data, Square, Bit Pay, Vodafone, eBay and more (MarketIngland, 2020). The switching cost for customer is considered to be low as these competitors offers the same services at affordable rates with much quick process.
Threat of New Entrants:The threat of the new entrants is considered to be moderate as there is intense competition in the market, dealing with people’s money will require compliance with stringent regulations, the industry is capital intensive and strong brand image is a prerequisite of operating in the credit service industry considering, customer’s trust and confidence will be essential as they are lending their money to the institution.
Threat of Substitute:The threat of substitute appears to be high considering, there are various alternatives for transferring money to abroad which includes Transfer Wise, MoneyGram, Xoom, PayPal, WorldRemit, Bit coin and more (Transfer wise, 2020). The threat of these intense substitute services has negatively affected the Western Union’s Value Preposition.
Rivalry: The industry in which the organization operates is considered to be highly competitive as there are various competitors and players in the market including the disruptive technologies such as Crypto Currency and Fintech.
In order to avoid competition in the market and reduce the threat of disruptive technologies, the organization can consider the following alternatives:
Alternative 1 –Collaboration with Facebook:
The launch of Libra, a global digital currency appears to be a major threat for the organization, as the technology will offer money transfer services at 0% margin with much faster speed and at a customer acquisition cost of $50. Since, Western Union is experiencing declining profits due to decline in fees associated with transfer of money it will be advised to the business to partner with Facebook in order to launch the digital platform.
The strategic option will allow the business to diversify its operations form using traditional money transfer methods to online transfers. Moreover, as Facebook has a customer base of 2.4 billion users worldwide, requires 0 margins for online transfer, will involve low cost and will increase the global outreach of the organization, the options seems to increase the profitability of Western Union as the supply cost will be decreased and customer deposits are likely to increase.
In addition, the strategy appears to be successful and benefit both the organizations as the strong image and compliance with data privacy regulations will ensure the customer uses the digital platform to transfer the funds due to trusts on Western Union. The option will also require less financial costs and will aid the organization in gaining experience of the digital world……………………….
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