A firm should also pay close attention to key political factors such as government economic policies, government social policies and the extent of government intervention. For example the increase of regulations on retail outlets in particular has altered marketing particles within the recent years. “Argos, Comet and Dixons as well as DIY chains Homebase and B&Q are running last-gasp promotions to pull in shoppers. VAT is increasing from 17.5% to 20% just as higher rail fares and petrol and domestic fuel price rises kick in.”(Wood, Z. 2010). Although the VAT increase affects all businesses at large such costs are normally passed on to consumers which exemplify the relation between the macro and micro environment.
Business legislation, environmental legislation, the laws surrounding contracts and consumers are just a few examples of different legal sources to which an organisation must be fully aware of and comply with, such regulations in place to rule out biased competition and protect customers against businesses. Ignoring new laws and legislations both within the internal environment and the way the company chooses to deal with the external environment such as customers and suppliers can cause the brand image to deteriorate.
The economic conditions have a strong impact on consumer purchasing power. With a cut in consumer spending within the recent years and the rise in inflation, marketers should develop innovative strategies to convert weaknesses to strengths. One of the strategies used by (Argos LTD) in recent years has been through issuing store credit cards, giving itself advantage of the limited availability of credit for consumers within tough economic climate.
Analysing the competition is one of the most vital ways in obtaining, and sustaining competitive advantage in order to stay ahead of rivals, “Professor Michael Porter of Harvard University Business School’s contribution to our understanding of the competitive environment of the firm has wide implications for many organisations in both the private and public sectors”(Lynch, R, 2003). It is useful to recognize the implications of Porters five forces for discussion of the different impacts, such factors can have on the organisation. Porter suggests that there are five basic forces that can act on the organisation which are the bargaining power of buyers and suppliers, the threat of new entrants, substitutes and the extent of competitive rivalry.
To provide an example, it is useful to look at (Argos) which holds a prominent reputation in the industry, a large customer base is able to reduce the rivalry of other competitors by distinguishing itself as the UK’s largest general goods retailer” Terry Duddy, chief executive of Argos owner Home Retail said he believes Asda’s quest to be “number one in non-food” to be more “about fashion” than the categories Home Retail operates in. The overlap of categories is relatively small,” said Duddy, adding that Asda is “not an Argos model” (MacDonald,G. 2009). An organisation must also be aware of the conditions of the market they are conducting business in. if they are operating in a well saturated industry and they have a good market share then there is a much smaller threat of new entrants where as if they were in a relatively new market, the threat of new competition would be much higher.
The given facts illustrate the importance of organisations continually monitoring and gathering intelligence in the competitive environment and implementing new strategies to ensure they can compete and survive in this ever changing environment. The extent to which the business succeeds in the competitive environment heavily depends on the organisation ability to adapt to the continuous changes in these factors, and to ascertain the correct timings for these changes. The value chain analysis can be used as tool; assuring value is added in all stages of marketing the product and if this cannot be maintained, competitive advantage will be increased. For example a company that provides home delivery and is unable to provide an efficient and professional service to customers, the brand image may decline as it no longer providing its purpose.
Although, fully established companies such as Argos are able to reduce threat, in terms of the bargaining power of customers through providing convenience in all aspects of the shopping experience, it could be said that they are obliged to monitor the macro external environment, even more rapidly than other competitors for a range of reasons. A company with such a high customer base and diversity of products should pay particular attention to the ecological aspects of the organisation not only by implementing corporate social responsibility in terms of helping the environment but also continually monitoring products sold to assure they are safe and secure.
In 2008 a range of leather sofas sold by Argos, contained a poisonous substance causing skin reactions. Although the product was not produced by the company itself this has a damaging effect on the company’s brand name.” Argos imports a significant proportion of its stock from the Far East, although it is relatively unclear as to what extent trade is conducted with potential ‘hot-spot’ countries such as China. A high dependence on manufacturers and suppliers from countries like China could pose a problem on the international arena, in part due to human rights concerns but also due to the unpredictability of these non-democratic regimes.”(Unsworth, R. 2009).