Unit 3 Business Environment Assignment Armani
3.1 Explain how market structures determine the pricing and output decisions in various organisations.
Market structure in economics represents the number of organisation producing identical or similar products which are the same.
- The costs structure– The cost structure determine pricing and output decision of the firm. The higher the costs the higher the price as firm tries to maximise their profit. And the higher the costs, firms would need more financial resources to increase production capacity (Kenny, 2012). However, consumers must be willing to pay the price they can afford and this leads to demand and supply mechanism.
- Availability of substitute products – will also determine pricing and output decisions. The more substitute products or services are in the market, the more consumers have a choice to buy the substitute product they can afford to buy.
- The level and intensity of competition in the market has influence and determine pricing and output decision by the firm. As consumers have wide range of choice, it forces the prices down and ultimately, output.
- The market share of the largest firms – The more dominant the largest firms dominate the market, the more pressure on prices and output, however, the small firms can still under-cut the market share of the large firm through lower cost-base thus offering product at a cheaper price. An example is Tesco, Sainsbury and Asda supermarket vs. discount supermarket chains like Lidl, Iceland or Aldi.
- The structure of buyers in the industry- Consumers buying behaviour, brand loyalty and taste influence how much to spend of a product or service also influence pricing and output decision of firms. Organisations may use for example advertising campaign to change these perceptions.
3.2 Illustrate the ways in which market forces shape organisational using a range of examples from Armani or other organisations.
Market forces are economic factors, price, demand, supply that affect the availability of goods and services. Price plays an important part in shaping the demand for and supply of goods and services. The higher the price, the less goods the consumers are willing to pay. And the higher the price, producers would be willing go flood the market because of profit motive to sell more of the product (s). Armani products designed to meet higher end of the market as well as targeting lower income. Tesco’s higher prices for its products are forcing even loyal customer switching to other competitors for example, Asda, Sainsbury, etc. The pricing level will also be determined by the cost of production. The higher the cost of production, the higher the price the firm will be willing to charge, and vice versa. This market force will affect Armani product as well.
The level of competition in the market place will also affect the price, supply and demand of goods and services this will determine profit objective of companies (Koetter, 2008). Armani or other firms can change these market forces by undertaking intensity of advertising and promotion campaign influences demand for its product. Armani, Apple, Samsung, etc use this market force to enjoy high demand for its products as a result of continue improving or product quality as well as intensive advertising campaign. The Porter’s 5 Forces could be used to describe the market forces which affect the Armani.
- The Bargaining power of Customer: When Armani started its business, there were not many organisations in the field of fashion clothing and when Armani came up with the luxurious products, the wealthy people could not restrain themselves from buying those products. At that time, Armani had the monopoly in the fashion industry, but now there are many other options available in the industry who provide the same luxurious products with matching quality. Hence, now the customer has got the bargaining power which would affect the pricing of Armani products.
- The Bargaining power of the Suppliers: As the organisations in the fashion industry increasing, the suppliers have now got many customers in the form of these organisations and now they can bargain with Armani on the rates of the raw material.
- Threat of New Entrants: Initially new organisation never invested a lot in the business but nowadays, most of the start-up organisations are backed up by the investors and big business housee. Because of this, the new organisations are able to invest on the quality and also on the marketing of the products. This kind of new entrants would be a threat to Armani.
- Threat of Substitute: Nowadays, the products of the Armani are not remained exclusive and many other organisations are able to match the design and quality of the products of the Armani. This provides the alternatives to the customers and they could go for a substitute product instead of Armani’s.
- Competition Rivalry: Since, Armani is operating in the free market economy; the competition is tough in the market. Every day a new organisation is coming in the industry and testing the quality and prices of the Armani products. The innovation in the industry has also become one of the leading factors in the competition and if Armani leaves even a tiny opportunity for other organisations, they would not take time to grab that and create problem for Armani.
The level of demand for Armani products are determined by a numbers of factors, including the quality, brand or labels and availability of substitute brands. Since there is the threat of substitute in the market, the law of demand which states that if the prices of a product is high when the substitute is available in the market, the demand will be decreased, and Armani would have to lower the prices of its products.
The supply of goods and services is another market force that shape organisation’s pricing, productions and market strategy. The higher the price consumers are willing to pay, the higher the quantity that firms are willing to produce and supply on to the market. Armani or any firm will not be willing to produce of the price to be paid is lower than the cost of production or company’s expected return on capital or investment. The Law of Supply suits the Armani group which states that of the price of a particular product in the market is high, it means that the supply of the product would also be high in the market. The luxurious products of Armani which are very costly have high supply by the company.
3.3 Judge how business and cultural environments shape the behaviour of Armani.
Organisational culture is defined ‘as the shared values and assumptions within an organisation. The culture of an organisation also emphasizes what the company values as important and can shape the behaviours and personalities of individuals in the firm’ (Kumar, 2014). The understanding of culture environment and organisational behaviour is critical for company and everyone within the organisation and can contribute to the success of a company. The share values, perceptions, beliefs, attitudes are parts of the key drivers of organisational performance. For example, organisations that embraces and value fun, place importance on customer-focus and entrepreneurial spirits among its workforce tend to do well. Armani, for example, pride its success to employee’s commitment to the organisation’s long-term value of customer service and to provide prestigious and high quality products style and pleasure to customers’ lives. An organisational culture, in addition, can be shared values and assumptions and also seen through for example:
- Physical structures: The physical structure of Armani is hierarchical and there are many levels in the organisation which are expanded from the owner of the company, top management, managers and lower level employees. Armani is known for taking care of its employees and the employees of the company have the freedom of speech and say in the decision making process which makes them loyal to the company. Along with the hierarchical structure in the organisation, Armani did the renovations of its 16 stores and also opened 30 new stores in 2002. Now the company is focusing on the e-commerce and trying to make the sales by its online portals in the different countries.
- Rituals and ceremonies: Armani is a 40 years old organisation and the organisation has its own rituals and ceremonies which are not much changed since its birth. Armani has always respected the art and creativity and this one aspect of the company makes all the difference in the market.
- Stories and legends: Mr. Armani is a legend and not only the employees of the Armani Group but also his competitors respect him for what he has done for the industry and still doing. He is a self made man and never compromised for the exponential growth of the business. This is what makes him inspirational for the employees and motivate them.
- Language: Armani is a multinational organisation and has it business in around 46 countries. There are employees from different origins and backgrounds with different languages, but it has never hindered their work as most of them know how to communicate professionally.
A strong organisational culture can developed into a strong workforce-organisational identity that brings the best out of people. This relationship can develop into a strong performance culture towards achieving organisational goals, and a strong culture can enable an organisation to be more effective. Armani’s success as a global fashion icon is attributed to this strong this organisational-culture identity because, it aligned its culture to the environment. The values of Armani and indeed, other successful companies like Coca Cola, Facebook, Google for example, is in tune with the market place, competition, technology and social environments. Armani’s cultural environment and behaviour foster good working relationship excellent customer service with its stakeholders, for example, suppliers, customers, product designers, global partners.