LO3: Understand the Behaviour of Organisations in Their Market Environment
Q 3.1 Illustrate how market forces shape organisational responses using at least two organisations as examples and at least 5 market forces.
Two organisations used for this task are British Airways and P&G.
Market Force: market forces can be defined as those forces of demand and supply which represents the cumulative influence of self-interested buyers and sellers on price and quantity of variety of goods and services offered in a particular market. In simple words, excess demand results into price increase and quantity of supply to rise whereas excess of supply results into price crash.
5 market forces identified in UK are as follows ( Porter, 2011):
- Threat of new entrants
- Bargaining power of customers
- Bargaining power of suppliers
- Intensity of competition rivalry
- Threat of substitute products and services
One example of a market force in demand is ‘Threat of new entrants’ this force especially in UK’s retail sector has created huge impact, companies like TESCO, Sainsbury’s, M&S are ramping up their operation because of the new retail players in the market. New entrants in retail segment has resulted in price-war in the retail segment. With customer seeking more economical prices for the products, bigger retail players are trying to adjust their competition strategy.
Threat of new entrants: Due to threat of Low Cost Carriers (LCC) British Airways was forced to improve its operational efficiency and ultimately it got privatized.
Bargaining power of customer: Aviation sector is a price sensitive sector, thus when various LCC came into market, there was stress on the pricing strategy of BA. Unlike when it used to charge hefty margin on each ticket, customer now started looking for cheaper flying options, which eventually created demand for LCC.
Bargaining power of suppliers: P&G-FMCG major in United Kingdom has been negotiating hard with their suppliers on the wholesale price of the items. However with some major suppliers not supporting P&G’s pricing strategy they decided to move out of P&G product stable. This resulted into change in the P&G procures product from its supplier now and it offers them price at par with its competitor i.e. Unilever.
Intensity of competition Rivalry: Unilever and FMCG has been fighting hard to gain leadership position of UK’s FMCG market. In this rivalry if one company launches a product then the competitor launches the similar product in the market at relatively lesser price point. This has given consumer an option to explore multiple products at different price points.
Threat of substitute products and services: With threat in form of similar products and services FMCG major Unilever and P&G has been rapid in innovation of new products. They always try to beat each other in terms of introducing a new product in the market.
Q 3.2 In the last 100 years, the UK has drastically changed. Consequently, businesses operating in the UK have had to adapt their marketing mix offerings to capitalise on these demographic and cultural changes.
Assuming you work as a Business Executive for a supermarket chain operating in the UK, write a report to the Directors, explaining how the business and cultural environment in the UK can shape the behaviour of this organisation.
Organisation chosen for this task is hypothetical in nature and has been named as HYPO food retail.
Food retail has been an important aspect of entire retail segment. With evolution of time there has been significant changes in the way food retail has shaped up. Being a Business Executive of HYPO food retail, I will be sharing my insights on how business and cultural environment in UK has resulted in change of behaviour of HYPO food retail.
Hypo Food Retail’s growth
Over a period of time since last one decade, UK has been witnessing retail revolution food segment. Because of this revolution HYPO has also seen a significant growth as a company. HYPO’s focus has always been on offering food products which are economic in nature and have the best quality in the market. With this mantra HYPO has been able to capture a significant share of the market within a short span of time. Today HYPO has X% of market share of UK total food retail market.
Surge in fortune of HYPO can also be attributed to cultural and behavioural shift of people towards food segment. With a hectic life, people today have no time to search variety of foods in different shops. They seek a one stop shop where they can fulfil their food related shopping at an economic price point. HYPO has tapped this cultural change and has established its chain of stores in various part of UK. Quality of food be it processed or raw has been maintained to the top most level ensuring consumer gets the best quality product. This focus on quality has resulted into creation of loyal base of customer for HYPO food retail.
Political Factor: This factor has played an important role. With people stressing for liberalisation in food retail government has been forced to open up this sector. HYPO was created when government started opening up the food retail sector. Hence positive government policy towards food retail has been helpful for HYPO
Economic Factor: Due to economic recession since 2008, there has been huge impact on HYPO’s overall sale. People reduced their bulk purchase and now focus on small purchases. Thus accordingly HYPO has also changed its packaging strategy to accommodate more ‘Economy Pack’ or ‘Super Saver’ pack in its retail chain.
Social Factor: Change in food habits of UK citizens have also helped HYPO to expand its base. People today seek quick food purchase option. They want all the food related item under one roof, be it non-vegetarian items or vegetables etc.
Legal Factor: This factor as such does not have impacted HYPO yet, but food being a sensitive item, it is important to maintain its quality, since in numerous cases of McD and KFC people have sued the company due to poor quality of the food or some other issue. That is why HYPO has been focussing on quality aspect of its food product rigorously.
Thus based on above mentioned factors and discussion it can be assessed that HYPO has still a long way to go in order to consolidate its market position. In order to be a leader in food retail, HYPO should adapt its business activities in response to cultural factors. For example with people seeking one stop for all their food related requirement, HYPO can come with in-store mini restaurants. This will help HYPO to capture those customers as well who might be feeling hungry after shopping products in the store. Also HYPO should start its online portal for e-commerce. With increasing internet usage HYPO can book orders of customer through its mobile apps, or websites and before the customer arrives it can ready his order for delivery. Hence with such strategies HYPO can offer more convenience to its customer.
LO4: Be Able to Assess the Significance of the Global Factors that Shape National Business Activities
Q 4.1 You have been selected by the trustees of your local youth group to make a presentation to young entrepreneurs in the area on the importance of international trade to the local economy. Key to this is a discussion on the significance of international trade to UK business organizations.
Prepare this presentation using a format of your choice (if you use power point slides, take a screen shot of them and paste into your answer)
International Trade: International trade can be defined as a process of exchange of capital, goods, and variety of services across international borders and territories. International trade in several countries represents a significant portion of its Gross Domestic Product (GDP). International trade has been present since hundreds of years, but its political, social and economic significance got highlighted only after globalisation started (Johnson, 2013).
Significance of international trade is huge for an organisation such as Admiral Group. This particular organisation has its operation in 8 countries. For example Admiral Group’s company Rastreator.com is company’s Spanish comparison site for car insurance products, this particular site has helped Admiral group to capture significant share of car insurance market in Spain. Thus international trade today has become important for companies to expand their business in new geographies and ultimately increase their revenue and profit. Also international trade has helped Admiral Group to reduce its dependency from UK market. With products such as Balumba.es and ConTe.it, Admiral group has been expanding rapidly in European continent. Thus international trade helps a company to reduce its risk factor by diversifying its business in different geographies. International trader has also been significant in terms of increasing brand value for companies. With known across globe, its value increases which company can capitalise on.
International trade has several negative and positive impact on local business. For example with launch of car insurance price comparison web portal in Spain, Admiral group has affected the local websites which did not have scale which Admiral had. Thus at times due to availability of resources and finances, international brands cannibalise the market for local players with their scale of economies and pricing strategy. However it does have positive impact as well. Once a local market witnesses an international company’s entry the level of services and its quality increases significantly. With a proper regulatory framework international trade can be used strategically for growth of local economy.
Q 4.2 Analyse the impact of global factors on UK business organisations.
Globalisation: It can be defined as a process through which entire world is increasingly getting interconnected due to massive increase in trade and cultural exchange. Globalisation has resulted into increased production of goods and services. Today biggest company in a nation has changed into multinationals, with their subsidiaries in several countries (Hopkins, 2011).
Two driver of globalisation are :
- Low transportation cost: Cost of shipping has come down significantly due to various advancement in logistics. Due this overall cost of the product is reduced, hence companies importing the product can import at relatively lower cost.
- Digital communication: Internet has dramatically reduced cost of transmitting and information communication. Digital products has stimulated the global trade in knowledge products and services creating an entirely new sector of services.
Two global factors which effect UK businesses are:
Competitive Drivers: Due to globalisation new companies are entering UK market. For example setup of low cost carriers (LCC) in UK’s aviation sector has resulted into stiff competition. Due to which customer is getting benefitted as competition has resulted in drop of airfare and increase in quality of services.
Government Drivers: UK’s government has been promoting liberalization of UK’s market since many years. Because of which every sector such as retail, insurance, automobile and aviation etc. has witnessed entry of new players. This has proved boon for customers, but companies having operation only in UK are facing the heat as they are not able to adapt themselves in such competitive structure. In such situation many local business might extinct over a period of time if government does not protects them from the international competition.
Q 4.3 For an organisation or organisations of your choice, evaluate at least two European Union policies and explain the impact of these polices on your chosen organisation(s).
Organisation selected for this task is Admiral Group.
The main purpose of European Union can be defined as to promote social and economic progress among its member countries. It also focuses on the area of freedom, security and justice which is maintained and built on the law established under European Union (Jura, 2012).
Two European Union Policies are:
- EU has a common external trade policy. Which means that trade policy has been declared as an exclusive competence of European Union and no member state can initiate and negotiate its own international trade agreement with a different country.
- Free trade and open border policy of EU allows transportation of goods and services within Europe quickly without any restrictions from the member states.
These policies have significant impact on Admiral Group’s business. For example because of Free trade and open border policy Admiral group was able to expand its business significantly in other part of EU such as Spain where it launched car insurance comparison website. That is why Admiral group after establishing itself within UK first, is now aggressively expanding among other member states of EU. Since there is no restriction and free trade policy is applicable for EU members, Admiral Group does not have to go through any legalities to establish its business in any other part of EU.
However external trade policy has resulted into the fact, that Admiral Group cannot form a joint venture or partnership with an entity out of EU member states. Thus if it had to form an alliance with a non- EU member entity then the process is very complex and resource consuming. This has resulted into loss of opportunity in growth economies of many Asian countries. With no alliance Admiral Group has to establish its own operation in non-European countries which results into huge operational cost.
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