Analysis Of Environmental Conditions Marketing Essay

Analysis Of Environmental Conditions Marketing Essay Analysis of environmental conditions is based on the framework put forward by Lynch (2009) that assesses the general degree of turbulence in the environment. This can be done by using the two measures of Changeability and predictability (Lynch, 2009, p80), which can be subdivided into complexity and novelty (changeability), and rate of change and visibility (predictability). Establishing a level of turbulence in the environment allows us to know with how much confidence we can predict the future (Lynch, 2009). In the fourth quarter of 2009 the UK GDP rose by 0.1% (www.statistics.gov.uk, 2010) which means Britain is officially out of recession. While this means recovery is under way, many analysts remain sceptical of the extent of recovery. Andrew Sentance of the Monetary Policy Committee has claimed that pace of recovery would remain uncertain (Sentence in the Telegraph Newspaper, 2010). So, as far as predictability and visibility go, it appears very difficult to predict with confidence the extent to which the UK economy will recover in 2010, with many anticipating a slow process because the economy remains weighed down by a still fragile banking sector and high consumer and government debt levels (Seager, 2010). With regards to Changeability and complexity, there is a general election expected in May this year and there is a strong possibility of a change of Government (www.yougov.co.uk, www.ipsos-mori.com, 2010), which will bring about a change in Government policy towards businesses, for example, the Conservative Party are pledging a cut in corporation tax. (www.conservatives.com, 2010). Adding to the complexity is the recent return to a 17.5% VAT rate that adds more financial pressure to consumers in an already struggling market. The recession may have ended but analysts are not expecting too much change in spending as economic downturn is squeezing spending power and that pressure will continue into 2010 (Mintel, Oct 2009). Given the reasonably turbulent conditions, organisations must change its strategies, and possibly its beliefs if it is to maintain its ability to handle changes in the environment (Thompson, 2005). So strategy cannot be made for years into the future because of the uncertain nature of the environment. Strategy should focus on the upcoming year until the turbulence reduces. 4.2 PEST Analysis PEST Analysis is a focus on the macro environment and which factors will change the external environment in the years to come. Johnson et al (p.54) states The environment is what gives organisations their means of survival. However the environment is also a source of threats. The macro environment is the highest-level layer. This consists of broad environmental factors that impact to a greater or lesser extent on almost all organisations. Therefore a good analysis of the macro environment is critical to success but should also be as general and non-specific as possible, this leads to one of the down falls of PEST that it can be a very useful tool when analysing the macro environment but also its general nature can be its downfall if it becomes little more than a huge list of factors in a shopping list fashion. We have chosen to use a simple PEST analysis but to add Legal to Political and Environmental to Socio-Cultural to make sure we consider all issues of the external environment. Another criticism of PEST is that it is only as good as the group or person conducting it, a criticism that can apply to any model. However when used appropriately this model can give a good indication of the factors that will affect the external environment in the years to come. Its ability to briefly analyse and present the factors that could prove important can be highly significant. The PEST Analysis can be seen in Appendix 1 and summary in Appendix 2 4.3 Porters 5 Forces Analysis of the industry analysis is based on Porters 5 forces model as referenced by many authors. The five elements that can have an impact upon MS are The bargaining power of suppliers The bargaining power of Buyers Threat of potential new entrants Threat of Substitutes Extent of Competitive Rivalry (Lynch, p97, 2009) More detailed information on Porters 5 Forces can be found in Appendix 3 4.4 Strategic Group Analysis Below is the strategic group analysis for Marks and Spencer, detailed information on SGA and how the table was created can be seen in Appendix 4 (Johnson, Scholes and Whittington (2008:76))SGA1.jpg Strategic Group Analysis for Marks and Spencer plc Scope of Activities (Extent of Product Diversity) Resource Commitment (Advertising Effort) Marks and Spencer Next John Lewis (Waitrose) Arcadia Group British Home Stores Tesco Marks and Spencer Tesco Next John Lewis (Waitrose) ASDA Debenhams 4.5 Market Segmentation Market segmentation differs from SGA in the way that is looks to customers as its focus rather than sector competitors. Lynch (2006, p105) states Market segmentation is fundamental to the development of corporate strategy. Careful analysis of segments and their characteristics is therefore important. For example some segments may have more profit potential, have less competition then others and some may be growing faster. Taking the age demographic for example the 18-30 age group is declining, whereas the 31-60 age group is growing rapidly. (ONS.gov.uk) Marks and Spencer have a great deal of competitors when it comes to market segmentation mainly due to the fact that Marks and Spencer covers so many segments, children through to adults, males and females, for example. The only segment Marks and Spencer does not appear cater for is the low income segment as its pricing policy is slightly more than mid range offered by the competitors such as Tesco in food and Next in clothing and home ware. Market segmentation of course has its advantages as it will help you to understand more competitors but importantly like the SGA will also show strategic opportunities or gaps in the market that after careful consideration could be moved into. Unfortunately, again, it is difficult to place a company easily within a segment and as before will only be based on one persons views and therefore cannot be ideal. 5.0 Internal Analysis 5.1 Resource Audit Johnson et al. state that although many companies in the same sector compete in the same environment, one may be a superior performer. It is not their environment that distinguishes between them but their internal strategic capabilities. (Please refer to Appendix 5 for definitions) We know that Marks and Spencer has the strategic capability to perform at the level required to survive and has the threshold resources needed to carry this out as well as the necessary threshold competences to underpin this, companies that were founded in 1880s would not still be in business today without these in place. More interesting are the unique resources and core competencies specific to Marks and Spencer that help them gain and maintain competitive advantage. We know that MS has a wide range of shops and retail units the length of the country but this is not a unique resource as Tesco has more units and more retail space, however unique to MS its presence on the high street in the volume it appears, with food and clothing, more supermarkets are situated on retail parks and out of town, even when they appear in town they are small and do not carry the same stock levels. MS also have 295 stores in 41 different countries. Logistically MS must have excellent systems in place to allow all these stores to be stocked. MSs biggest unique resource perhaps is the brand. When you say Marks and Spencer to people they almost always think of quality. Marks Spencer have been around for over 125 years and no company can survive this long without delivering good quality own branded products that have stood the test of time. 5.2 Value Chain Analysis The value chain describes the categories of activities within and around an organisation, which together create a product or service (Johnson, 2008, p110). The primary activities for Marks and Spencer concern its inbound logistics, operations outbound logistics, marketing and sales and service. MS places great emphasis on the quality of its products, which they believe justify higher prices. The marketing strategy emphasises this with, for example, the your MS (see case study) attempting to give back to the customer and emphasising the quality of the products. They have also begun to promote a price comparison with Waitrose (Thomas, 2009) while keeping an emphasis on quality, with the strap line Price checked against Waitrose Essentials. Quality checked by MS (Thomas, 2009). This method of emphasising quality has given MS its reputation, but it is important to live for the standards it sets itself. MS also adds value through its customer service, with a Mintel report revealing it has the highest customer service rating of any retailer amongst consumers and is continuing to invest in raising service standards (Mintel, 2007). They have also trained some staff to become healthy eating experts (Mintel, 2007) in a bid to improve customer service. It is this sort of commitment that enables MS to be regarded as a high quality retailer. They would be unable to charge higher prices if customer service was poor. For its outbound logistics MS have launched new ways of packaging. Under a program known as plan A in cooperation with Oxfam they plan to become carbon neutral by 2012. This is being done by promising not to send any packaging to landfill and putting labels on packaging so that consumers know how to recycle their goods. (Mintel, 2010). While many retailers have launched ethical policies with regards to packaging MS appear to have gone further than others with its promise to become carbon neutral. This policy is backed up through one of its support activities, technology development, where they sought to introduce new recyclable content into its packaging. Value has also been created through a commitment to sustainable fishing (The Guardian, 2010) making it the first food retailer to make such a commitment. This shows an ethical standpoint on its inbound logistics and procurement policies. Such policies have helped create value within the brand, giving consumers the image that while they may pay a bit more for their products, they will receive high quality, ethically produced goods, which it is hope will bring customers back. 5.3 Key Stakeholders We will now look at key stakeholders using Mendelows Matrix (Ref: majyds.wordpress.com//power-of-stakeholders/) Mendelows power/ interest matrix High Customers Employees Shareholders Power Low Bank Creditors Low High Level of Interest NB: More detailed analysis on how this conclusions were drawn can be found in Appendix 6 6.0 SWOT Analysis of External and Internal Analysis After analysing the internal and external environments we can generate a series of strategic alternatives or choices of strategies to follow in the future. To do this, we must look at the strengths, weaknesses, opportunities and threats. The purpose of this is to build on the strengths of the company, eliminate weaknesses, develop opportunities and counter threats. The SWOT and the reasons why we have chosen the strengths, weaknesses, opportunities and threats that we have can be seen in Appendix 7 and 8 7.0 Strategic Options for Marks and Spencer 7.1 Option One After producing the swot analysis and identifying the areas that need attention and further progression, we need to implement some strategic options using the key elements of the organisations purpose. When looking at the SWOT analysis we can see that amongst MSs strengths, they have the biggest market share in clothing and produce quality products. They also have weaknesses of reliance on their own brand and they are in a weak cash position. These lead us to consider MSs environment based options, in particularly, their market options. Ansoff Matrix Diagram(Mindtools.com) Looking at Ansoffs Matrix (above), one of the strategic options we have chosen to implement is that of Product Development. We believe that although MS currently have the biggest market share in clothing, this needs to be protected and pushed forward. Especially as there is such fierce competition in this sector. With the fact that MS already sell clothing, they will not require new competencies to execute this plan. Fashion retailers like Next, MS and Topshop have been through a long period when they have been able to rely solely on declining prices to drive sales upwards. However, with the falling pound and rising overseas sourcing costs, competing on price is going to become increasingly difficult for them. Customers who still have money to spend are going to be ever more demanding. Retailers will have to identify the needs of their core customer even more closely and make sure that they are met. Improving staff training, motivation and product knowledge, as well as recruitment and retention will be crucial in doing so. (Mintel 02/09) As the statement above says, retailers need to identify the needs of their customers more closely. MSs clothing is well know as a mature fashion range, though recently George Davis, the man behind George at Asda is about to launch a new spring collection with a brand new label. This clothing range is called give and is aimed at aged 30+ women. The entrepreneur is bankrolling give, which targets well-off women with fashion pieces that can be customised to fit perfectly. (The Guardian, 02/10) This is product development in itself as they are bringing in new products to existing markets, but we would suggest that they focus on making the new label one that will attract the younger customer at an affordable price. We would also suggest that they use a well know female celebrity to endorse the new clothing range. Neil Mason, a senior retail analyst at Mintel, believes that introducing a limited collection, like Kate Mosss at Topshop, adds to the appeal. The celebritys status in itself is enough to make these lines work, but theres no doubt that when a retailer limits the supply it generates more interest, a real kudos for the people who manage to get their hands on a coveted item. (independent.co.uk:2007) Younger females look up to and want to be like young, successful female celebrities and are very fashion conscious. MS currently have Twiggy as the face of a brand of clothing, but this would not appeal to the younger audience. This strategy should be implemented as soon as possible to coincide with MSs seasonal clothing ranges. 7.2 Option Two Using Ansoffs matrix, it has also been decided to use market penetration as an option, specifically with regards to food sales. As was found in the SWOT analysis food sales remain comparatively low and with its main competitor (Waitrose) having overtaken MS food in terms of market share, (Finch, The Guardian, 2009). As of July 2009 Waitrose had a share of 4.2% to MS 3.7% (Creevy, 2009). Having identified food sales as a weakness (despite slight growth in the last quarter of 2009 (Mintel, Nov 2009)) it is necessary to formulate a strategic plan to improve this situation. Given the immense competition, struggling UK economy, consumers down trading and the price wars between competitors there are major hurdles to cross to penetrate the market further. However, using the strength of the brand and the added value MS has over other food retailers a plan can be developed. While MS will never compete with the likes of ALDI and LIDL on price it can look at overtaking Waitrose. Mintel suggests Waitrose have leapfrogged Marks Spencer in food sales, helped by its Essential value range (Mintel, 23-07-2009) and as consumers are moving to cheaper supermarkets it is suggested that MS launch a lower cost range to compete with Waitrose. By attracting customers with lower cost alternatives it can use its high level of customer satisfaction to try and keep them. It will be important to also keep an emphasis on quality. The advert referenced in the value chain analysis reflects this, but the campaign needs to be bigger to make all consumers aware of it. There is a perception that MS is much higher priced than its competitors (Finch, 2009), that Sir Stuart Rose has acknowledged so it needs to wow customers with good deals. Also, it could be said that MS has an over reliance on its own brand and shoppers cannot get their favourite brands in MS so have to go to another shop to get them. This possibly results in a loss of custom. If MS can roll out popular household favourites, such as Kelloggs, Heinz etc as well as keeping an extensive range of their own products an increase in food sales and market share should happen. 7.3 Option Three Looking at the further options raised by Ansoff, another strategic option for Marks and Spencers to investigate is that of Diversification. Looking at the SWOT we can see that diversification and acquisitions are both on the SWOT as is a strong brand name, this led us to thinking what could MS do? There are two types of diversification one is related, where new products and markets are developed but within current capabilities and constraints or unrelated where it is beyond the current capabilities. We are going to look at adding new luxury products to new markets concerning both vertical and backward integration. This could be through integration or merger/acquisition of say a car manufacturer or a luxury holiday supplier. The supplier getting to use the Marks and Spencer brand name associated with quality and then MS marketing the products and getting a percentage of the profits made on sales. MS already supply travel money so why not holidays as well. Many companies have to adapt to survive, MS are not different in this respect, companies need to look to increase revenue where they can and this is one way it can be achieved. Business synergy is important and this can be one way to achieve, create new and maintain it. 8.0 Evaluation of Strategic Options Strategic Option Suitability Acceptability Feasibility Total 1 8 5 9 22 2 7 6 7 20 3 7 4 4 15 Detailed Analysis of how this was reached can be found in Appendix 9 8.1 Conclusion Overall, we would therefore recommend option one for implementation. 9.0 Evaluation of Models Some analysis is contained within the text and appendix but any additional analysis is detailed in Appendix 10