Pestel Analysis On Fmcg Industry Economics Essay
The term Fast moving consumer goods (FMCG) refers to those retail goods that are generally used or replaced in short period of time i.e. a day, a week, a month, & within one year. FMCG is also known as Consumer Packaged Goods (CPG). These products are relatively sold at low cost.
FMCGs have a short life, either as a result of high consumer demand or because the value of product deteriorates gradually. It comprises consumer non-durable products that include food, beverages, personal care, & household care. Goods such as meat, fruits & vegetables, daily products & baked goods – are highly perishable.
Among all the sectors FMCGs industry is one of the fourth largest sector in the country & growing at a booming rate over the years. The Indian FMCG industry is mainly classified as organised & unorganised. The FMCG sector is highly segmented as different products are made for different segments in the society.
The FMCG industry is characterised by low margins. The FMCG segment can be classified under two segments –
A: Premium segment:- Premium segment covers mostly to higher / upper class which is not price sensitive but brand conscious.
B: Popular segment:- The popular or mass segment consists of consumers belonging to the semi- urban or rural areas who are not brand conscious.Products sold in the popular segment have lower prices than premium segment.
Pestel analysis is a tool to understand the environment in which business operates, & the opportunities & threats that lie within it. By understanding the environment in which it operates, it can take advantage of the opportunities & minimizing the threats. Specifically PESTEL analysis is useful tool for understanding risks associated with markets growth or decline, & directing business to grow.
P – Political factors
E – Economic factors
S – Socio-cultural factors
T – Tecnological factors
E – Environment factors
L – Legal factors
A PESTEL analysis is a measurement tool, looking at all the external factors of the organization. It is often used within a strategic SWOT analysis (strength, weaknesses, opportunities & threats analysis).
PESTEL ANALYSIS ON FMCG INDUSTRY:-
Political stability : Political stability is one of the important most factor which influence the growth of business directly. If Political stability is higher, then it leads to perfection in business & on the other hand if there is unstability the business will have to suffer.
Taxation policy : Tax policy of government will affect the price of inputs & it ultimately affect the prices of final products & it will directly affect the sale of product.
Government intervenes : This indicates that at what level the government intervences in the economy. If the government intervence is more sometimes it helps the organization at large extent.
Subsidies : The subsidies which are provided by government to different organisation at different level also help it to grow at faster rate & helps the organisation in reducing the finance which is to be funded from outside & it directly reduces interest amount paid in favour of fund raised from outside.
Trading policies : This indicates the policies related to import & export of goods and services from different nations. If the policies are favourable more goods & services will be imported & exported, & on the other hand if policies are unfavourable it will restricts the import & export.
Labour law : Labour law also affect the organisation, for example- child labour, a child below 14 year of age can not work In factory or any hazardious place.
ECONOMIC FACTORS –
Interest rates : Interest rate directly affect the cost of capital, if the interest rate is higher the cost of capital will increase & if it is lower then cost of capital will be lower. This directly affect the profit of the organization & it’s growth.
Tax charges : If the tax charged by the government is lower then it will reduce the product price & if it is higher then it will increase the prices of the products.
Exchange rates : This shows that what is the exchange rate or foreign currency rate. If exchange rate is higher more amount is paid on import of goods & if it lowers less amount is to be paid & on the other hand if it is higher the amount received will be more & if it is lower the amount received will be low.
National income : National income is important factor as if affect the growth of the organisation. If per capita income is more the amount spend will be more & if it will be lower the amount spent will be less.
Economic growth : Economic growth is important factor in the development of the organization. If economy grows at a higher speed it will directly affect the growth of the organization.
Inflation rate : Inflation means the rise in the value of all the product in the economy, if inflation rate is higher the cost of products will be higher & if inflation rate is lower the cost of product will be lower. This directly affect the growth of the organization.
SOCIO – CULTURAL FACTORS –
Demographics : Demographics is the study of human population in the economy. It helps the organzation to divide the markets in different segments to target a large of customers. For Example- according to race, age, gender, family, religion, & sex.
Distribution of income : This shows that how income is distributed in the ecconomy. It directly affect the purchasing power of the buyers. And ultimately leads to increase or decrease in the consumption level of the products.
Changes in life style : Change in life style also leads to increase or decrease in the demand for different commodities. For example- presently LCD & LED TV’s have replaced Digital displayed TV set, this shows that the changes in life style of consumers.
Consumerism : This indicates that a large number of options are available while purchasing of goods to consumers, so the choice becomes easy & quality products can be choose by consumers. So while purchasing a consumer have different choices to select product according to his needs.
Education levels : Education is one of the most important factor which influence the buying power of consumer, while selecting a particular good a consumer should know all it’s features so it can differentiate them with another products.
Law affect social behaviour : Different laws are made by the government to safe guard the rights of consumers. For example- Consumer protection act, this law indicates that a consumer can file a case against a seller if he finds that he is cheated.
TECHNOLOGICAL FACTORS –
Advancement in technology : New technology helps in economising the scale of production, this means that new technology helps in increasing the level of production, & reducing the costs of inputs, & maximising the level of profits.
Discoveries & innovation : Advancement in technology will leads to discoveries & innovations & further improvements in technology so as to improve perfections in the production process.
Competitive forces : Advancement in technology will also leads to competition in the markets, more quality products will be provided to consumers to cover a large number of market.
Automation : Change in technology will leads to automation, this means that with new technology labour required is less as machines are automatic. All the works are done automatically by the machines as earlier it is labour oriented. Now all the work is machine oriented.
Obselete rate : Day-by-day new inventions are made so the rate of obselete is higher, as in Computer LAPTOPS have replaced the PC. This shows that the technology becomes obselete very fast.
Research & development : This department plays a vital role in the development of the organization. As this department always do research that what are the demand of the markets & how to make advancements so the organization can survive in the competitive world.
ENVIRONMENTAL FACTORS –
Ecological : The ecological and environment aspects such as weather, climate, & climate changes, which may especially affect industry such as tourism, farming, & insurance. In FMCG Air conditioner’s demand increase in summer season.
Environmental issues : Global warming is one of the major issue now-a-days as external factor is becoming a significant issue for firms to consider. Many remedies have been taken to reduce Global warming.
Environmental regulations : Various regulations have been declared by government to safe guard the environment. For example- no company should through it’s waste in rivers.
LEGAL FACTORS –
Employment law : Employment law provides equal opportunities to every citizen to work & earn his livelihood. It provides equal opportunities to every citizen.
Consumer protection : This law helps to protect the rights of consumers & he can file a case against seller if he fined that he is cheated.
Industry-specific regulations : These laws are related to industry for example- no industry can establish in between cities i.e. it should be outside the cities.
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