The Phones-4-U Scenario

Phones 4 U

Pretty much the major business news story of the month so far. Phones 4 U have entered administration as a result of losing key contracts with O2 and then EE.

Is this an isolated case or could the Phones 4 You risk apply to your business also?

Why Has Phones 4 U Entered Administration?

David Kassler, boss of Phones 4 U was quoted as saying;

“if mobile network operators decline to supply us, we do not have a business”

Now, there are many reasons why this decision may have been made. There could be doubts around an ability to pay, reputation of the retailer, late payments or some other reason. You could even look at the decision as phone providers wanting to limit retailer choice and stifle competition. Whatever the reason, it shows that supplier risk is evident in almost every business.

Supplier Risk & Why It Is Relevant

Michael Porter developed a model looking at business risk. The ‘Porter Analysis‘ was about 5 areas of business risk, being the following;

  1. Supplier Risk
  2. Buyer Risk
  3. Substitute Product
  4. Competition
  5. New Entrants

When looking at Supplier Risk and Buyer Risk it is all about what level of influence each has and how much reliance you have on any one of them. In the case of Phones 4 U, they had the major mobile networks as suppliers. The customer expectation is that the ‘independent’ mobile phone retailers will offer all networks from which the customer can select the best for them. Without the choice the benefit to the customer lessens, with no choice you have no business.

In this respect Phones 4 U were wholly reliant on the major networks as suppliers. The supplier had the power in the relationship and this was the company’s ‘Supplier Risk’.

In almost every business there is risk, sometimes it is difficult to see without the benefit of business models such as Porter or SWOT, sometimes it can be more difficult to mitigate that risk, either way you ignore it at your peril.

By Dave Farmer

Dave Farmer is founder of Lime Consultancy, an award winning business finance advisory based in Sussex. If you have any comments about this article please add them above, or contact us direct here.

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