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Pestel Analysis Essay

Situation analysis and marketing planning. The importance of the internal and external environment and their effect on the development and implementation of marketing planning is crucial and should be highly considered by any organization wishing to be profitable in the increasingly competitive international marketing arena. Multinational companies that desire to prosper, should develop a coherent international marketing plan having, as a starting point,the analysis of the environment. Based on that, the company objectives, strategies and tactics are drawn, aiming for organizational success and profitability.

Multinational companies should have in mind that effective marketing strategies couldn’t be developed without firstly analyzing the external and internal environment in which company operates. The external environment for a company covers many aspects. It is suggested that the environment covers two main areas: * the macro-environment * the micro-environment. The macro-environment consists of forces such social, cultural, legal, economic, political and technological. Within this are included factors such as demographics, green issues endanger societal and environmental forces.

The micro-environment includes other environmental constraints, such as the structure of the market, the suppliers, customers,trends of the market, the public and competition. Equally important is the internal environment incorporating the examination of attachments marketing mix (product, price, place, promotion)

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and service mix (people, process management, physical evidence). An analysis of the internal environment also covers other factors such as sales, profitability, market share and customer loyalty.

The internal audit examines the company’s own resources and supplies suggestions as to the company’s strengths and weaknesses. Internal incinerations are mainly controllable by the company and, therefore, companies should mostly avoid any problems from this area. It is evidently proven that product development and strategic formation is based upon the internal organizational capabilities Every company, after considering both its internal strengths and weaknesses and the external environmental influences that affect it (opportunities and threats) is in a position to develop an effective marketing plan.

Failure to understand the external and internationalists may lead to sub-optimization of the organization’s strategy and resources invested. Multinational companies must highly consider environmental auditing and the development of the SOOT (strengths, weaknesses, opportunities and threats) analysis. This is vital if they want to capitalist on organizational strengths, minimize any weaknesses,exploit market opportunities as they arise and avoid, as far as possible, any threats.

Political/legal factors Political factors include laws, agencies and groups that influence and limit Pestle Analysis By Dependability organizations and individuals in a given society The dimensions being evaluated include the government attitude to foreign markets, the stability and financial leslies of a country and government bureaucracy. Political and legal forces are highly important as they cover many aspects of company policy. Government policy affects industry as a whole through regulatory bodies such as the Department of the Environment and the Department of Trade and Industry.

These bodies develop policies on the trading, restrictions and standards within their particular field. The policies created can affect businesses in various ways; in how their products are produced, promoted and sold. Multinational companies should understand that the political background is different across the regions of the world. Many former centrally planned economies, for example,are still heavily protected by the government. In such a climate, it is more likely that proposals for a Joint venture will be accepted. T is argued that the legal ramifications of marketing a product internationally are very complicated. Each country has their own legal system and when a company internationalists then it must keep within these legal systems. The legal environment must be assessed to determine whether it would affect the launch of a product into a new state or country. In many states & countries, government and regulations have a direct influence on product design.

Law often imposes minimum or special product standards, which may necessitate the shape kind, components or even the brand name of a product used. Government regulations and restrictions regulate the content of promotion. The law restricts the advertiser’s freedom, particularly with regard to the advertising message and visual presentation. Promotional activities also may have to be changed, depending on the country involved and the legal systems that take place. Economic factors Economic factors include factors that affect consumer purchasing power and spending patterns.

Economic trends are again, to a large extent, bound up in government policy and area crucial issue to businesses and marketers because of the way they affect consumer spending power. In periods of relative prosperity, a consumer’s disposable income will be relatively high and, therefore, there is a willingness to spend more money. Price becomes a less sensitive issue and this affects marketing strategy itself. During a recession,however, spending power decreases making price more relevant.

The differences that exist between countries in different stages of economic and industrial development have a profound influence on price setting. Differences in income levels may suggest the desirability of systematic price variations. It is, therefore, important for every company to understand that, in countries with a lower stage of economic development, it is necessary to set a lower price. The limited purchasing power in developing countries, often combined with low levels of literacy, poses special problems for marketers on promotion.

Although theoretically a company has a wide choice of promotional tools, in practice the choice of effective tools is somewhat limited. Technological factors Technological developments have made international travel and communication ore accessible to consumers and led to a situation in which social habits and tuitions change much quicker. Moreover, littlest and attitude changes cause changes in product demand and how products can be sold to customers. Technological factors include forces that create new technologies, creating new product and market opportunities.

It is based on considerations as to whether the local market has sufficiently developed technologies to take full advantage of the product. It should be noted that high technologies are required to make full use of the variety of promotional methods using alternative advertising Edie such as television or websites Socio-cultural factors Shifts in spending power are also affected by sociological demographic trends. Analysis of population fluctuation suggests to marketers in which age groups there is going to be the largest demand for particular goods.

A baby boom, for example, will increase the need for baby products initially then, in following years, a greater demand for toys, educational products and children’s clothes etc. Another emerging trend is the changing family, with the traditional family unit of mother, father and two children in decline. The increase in one person households creates different deeds in home products as homes require smaller products and money is spent due to more frequent home movement.

Changes in demographics can, therefore, affect things such as the development, designing, packaging and promotion of products. It could also shape the organizational setting of strategies and strategic planning. Environmental factors The climate and physical terrain of a country are important environmental conditions which have a significant effect on the demand and the type of product made available. Prior to entry into a new market, it is very important for a company to insider the physical terrain and climate in the appraisal.

Altitude, relative temperatures and humidity are some of the climatic conditions that can affect products in markets Stakeholders It is important that companies highly consider and value their general public or stakeholders – their staff, suppliers, distributors, shareholders and the consumer itself. How a consumer and, indeed, the other ‘publics’ mentioned, view the company and the products marketed is important, firstly in order to assess what market you are in but, secondly, to assess whether the corporate image of the company is functioning in a positive manner.

Public perception of your product allows it to be positioned or repositioned to reach the required target market and, therefore, be successful. If you view your product as portraying a certain image that is at odds with the public perception of it, obviously your marketing strategy is not functioning properly. Likewise, if your business itself is viewed in a negative light by actors both internal and external to the company, steps need to be taken including the design, quality, marketing and strategy of what is offered to correct this and therefore create a feel good factor. Customer tastes

Customer tastes is another very important issue to consider. Every company should undertake market research and understand consumers’ needs and wants. Based on that, it should design marketing strategies and tactics to meet the needs and requirements of its target audience. This is crucial as, by undertaking necessary adaptations, the company can maintain its marketing orientation and go in line with the marketing concept. Product One of the aims of companies is to create, where possible, a standardized set of items that match with consumers requirement including consumer tastes/ preferences and laws/customs.

Structure of the market/competition The issue of the competitive environment must be seen as probably one of the most important issues. By gathering continuous data about competitors, such as their strategic strengths and weaknesses, their objectives, strategy, tactics and reaction patterns and the sort of marketing activity/budget, a company can decide its own position in relative terms and be prepared for what challenges are facing them in terms of competitor attacks.

This information also can be used to interpret sudden moves by competitors and how they will respond to a move you are considering aging Porter (1980) and Doyle (1983) are both proponents of positioning strategy. Porter considers the external factors which impact upon a firm’s competitive positioning. Doyle refers to the choice of target market segment which describes the customers. A business will seek to serve and the choice of differential advantage which defines how it will compete with rivals in the segment.

Porter claims that competition is at the core of success or failure of the firm and that a successful competitive strategy can establish a profitable and sustainable industry position. He claims that there are two fundamental questions underlying the choice of a competitive strategy: firstly, how attractive is the industry with regard to profitability unadvisedly, what are the determinants of a competitive position within an industry. According to Porter there are five competitive forces that will govern the rules of competition and these rules will prevail in any industry both in domestic and international markets.

The five forces are: * the entry of new competition to the market * the threat of substitutes or replacement products * the bargaining power of buyers * the bargaining power of suppliers the rivalry between firms of the same sector Threat to new/potential entrants The barriers to entry are quite high for new entrants, as the size of any big existing company means they have achieved economies of scale and have preferential access to raw materials and distribution channels.

New entrants may find that a high cost of investment is required in securing plant and machinery Threat of substitutes A substitute product is one that can be used as an alternative to a company’s own. It could be argued that the threat of substitutes to any company comes from the another company providing the same product and Bargaining power of buyers This area is perceived to be fairly low risk for a company as consumers have little control over the variations in the product offerings, price and place of distribution.

However, international market research should take place and any necessary adaptations made. The company should keep customers satisfied, as switching cost is low and the possibility of switching to another brand in case of dissatisfaction is relatively low. Bargaining power of suppliers This ranges from the threat of forward integration to the threat of cutting off supplies. As every company must has a great deal of influence over their suppliers, u to the fact that it aids them and trains them, the threats from suppliers are low.

Competitive positioning So, what is a good strategy? Can a firm position itself in order to gain competitive advantage over its competitors? Is there a specific position a firm should take in order for its strategy to be successful? Rumble (1980) states that competitive advantages can normally be found in superior resources, superior skills or a superior position. Resources and skills enable a firm to do more or do it better than the competition. Different resources and skills will be required depending on the industry or market segment.

Positional advantage is how the arrangement of these resources and skills are used to out maneuver the competition. Positional advantage can be gained by forward planning, greater skill and resources or luck! Once a dominant position is gained it is difficult for the competition to dislodge the incumbent firm provided the position merits continuation and that it is extremely costly for competitors to take over. As long as environmental forces remain constant position can remain constant. Positional advantage can take the form of size or scale, differentiation from competitors and successful trading names.

To be successful, a company needs to get both its strategy and tactics working in harmony to provide the optimum return bounded by efficiency Both strategy and tactics should be designed after a careful consideration of the situational environment. Let is apparent that businesses finding themselves to the destined to die, strategy being the key factor as to how quickly. Considering a company’s good performance we can argue that the company is thriving as it is effective – doing things right (having the desired effect, producing the intended result) and efficient – doing wasting time or resources) e r gnat thing (able to work well and without

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