Reference no: EM131919065

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Aetna Inc.

Rivalry among existing competitors

This is the biggest force that impacts healthcare industries. There are many competitors within the healthcare business and this can be quite difficult for some companies to deal with given that some companies may be stronger financially than others.

For Aetna, their main competitors would be Cigna Corporation and United Healthcare. These two companies provide the same services that Aetna provides their customers and this could sometimes lead to a price reduction war and other areas that would cause companies to switch tactics given the actions of other companies.

This could also lead customers in switching insurance companies if their current insurance company cannot meet the competitors' prices. All these companies offer various insurance plans or healthcare services. What this means for Aetna is that they must be unique by providing something different to the customer. The unique offerings may be customer support functions and processes, reduction in price on insurance and healthcare plans, or developing stronger customer management relationships by implementing technologies to help track customer needs.

This may affect the way in which they develop strategies in the future or adapt current strategies to respond to what their competitors are doing. This type of industry is fragmented, meaning that there is not company that dominates the industry, but more of a segment of the population, which could breed fierce competition between the companies within the industry (Mastering Strategic Management, 2014).

The bargaining power of Suppliers

Given that Aetna offers medical insurance and healthcare services, suppliers do not have real power over them given that they are offering a service rather than a product. If they were a medical supply company, then suppliers may have some power over them given that the suppliers could charge what they wanted for their products.

However, Aetna is only offering insurance plans that are more of an intangible asset to the consumer. It's a guarantee that their medical expenses as well as other expenses will be covered by the company. However, service prices could go up forcing Aetna to raise their rates in trying to covering these expenses that are accrued by their customers. So, in a way I guess, suppliers do have power over the insurance company.

Medical professionals could decide to charge more for their services or products, which cannot be covered by the insurance company. Also, medical professionals could decide not to accept certain insurance plans to cover their patients' medical costs. This could lead competitors to an opportunity to acquire customers from other insurance firms that may not have the financial freedom to cover these expenses without charging their customers more. Competitors may also have the greater influence in a particular region as well.

Threat of New Entrants to the market

This situation is a bit trickier given that healthcare companies are hard to establish, but not impossible to accomplish. The biggest threat to Aetna is the already established insurance companies that are based around the nation or the world. New entrants may be seemed as ill experienced and too new to the scene to make customers feel confident in switching their service to the newly established insurance company.

Also, insurance companies are under strict limitations and monitoring from governmental entities (Mastering Strategic Management, 2014). This could make it very hard for start insurance companies to dive into the industry or acquire the motivation to do so.

The bargaining power of Buyers

Like threats from new entrants, bargaining power from buyers is limited as well. People do not have the foresight to know when they will be injured, sick, or develop some type of aliment that would require them to seek medical help. This leaves people with the need of medical insurance to cover the expenses that may accrue when seeking medical care. For the most part people will want to have insurance just in case something happens.

The true power lies within the freedom to choose what company the customer wants to purchase the insurance from. Aetna must be able to acquire customers and retain them, so that they can profit and expand. If customers choose to take their business elsewhere, then this could be somewhat of a bargaining power that customers hold over Aetna. For the most part, customers must adhere to what the insurance company will charge them given that most insurance companies charge about the same rates given that their area could have limited options (Mastering Strategic Management, 2014).

Threat of Substitute Products/Services

Insurance companies are also not affected by substitutes, especially in America given that most people with health insurance have acquired it through their place of employment.

These places of employment may only offer one type of insurance plan and this usually suffices for people. For more affluent people or others that may be self-employed that want to purchase their own insurance, then substitutes may affect Aetna given that the person purchasing the insurance has the power to choose what type of insurance they want and through whom they want to purchase the insurance from. This could be a problem that relates to the rivalry issue for Aetna.

They must be able to show their customers why they are better than their competitors by offering the customer something unique. This also takes on the pressure of bargaining power of the buyer given that they have the freedom to choose the company they want.

Aetna must be able to acquire and retain customers as previously mentioned, so making sure they have the best strategy to accomplish this goal is a crucial issue that must be constantly assessed to see if it is in fact accomplishing this goal. But other than that, Aetna is not really affected by substitute services given that they offer medical insurance. They are more affected by the competition than anything.