Environmental Factors which Influence Marketing Decisions (Based on Carphone Warehouse)
Table of Contents
This essay aims to identify key environmental elements that have an impact on various marketing decisions of an organisation. The essay uses different academic frameworks to highlight the importance of multiple environmental factors to an industry. To provide the essay with real world analysis an organisation is used as an example, which allows practical implementation of various academic frameworks.
The essay is divided into multiple sections. The initial part of the essay highlights the macro and micro environment in which the organisation operates. This is followed by various marketing elements that the firm uses to develop an effective segmentation in the market. The overall analysis also presents the impact on consumer behaviour and how this impacts various marketing decisions taken by the organisation. The analysis also provides an in-depth explanation of various marketing communication techniques used by the firm to enhance its position in the industry.
The organisation used in this particular essay is Carphone Warehouse (CPW). Formed in 1989, CPW is a leading mobile phone retailer in the UK (CPW Annual Report, 2013: 8). The organisation operates over 1650 stores and employs 11,300 individuals. The revenue of the business in 2013 was £10.23 million (CPW Annual Report, 2013: 11). The organisation over the past 2 decades has grown at a rapid pace and is a well-known brand in the UK. The organisation is focused around providing the best possible connected experience to its customers (Nguyen, 2014: np). The firm acts as a third party broker for mobile phone contracts and also offers standalone headsets for purchase.
Baines et al (2009: 77) highlight that the macro environment forms the basis of various elements which formulate the larger part of the society, these factors directly impact a business. This includes factors such as politics, technological growth, global economy, social behaviour and legal aspects. The macro environment cannot be controlled by the organisation and hence the business needs to adapt to the needs of the macro environment (Johnson et al, 2011: 65).
PESTEL (Political, Economic, Social, Technological, Environmental and Legal) as a framework allows an organisation to effectively analyse the macro environment in which it operates. The following section presents a PESTEL analysis for CPW in the UK.
Any business industry is directly impacted by various elements of economic development, legal requirements and social behaviours (Grogaard, 2012: 85). Table 1 presents the PESTEL analysis for CPW operating in the UK.
Table 1: PESTEL, CPW-UK
The table above highlights key macro environmental factors that CPW needs to take into account in order to develop an effective strategy. An organisation needs to understand the core aspects associated with the macro environment to develop an effective and efficient marketing strategy.
The micro-environment of a business determines the overall competitive state of the organisation (Hollensen, 2013: 21). The micro-environment factors have a direct impact on how a firm conducts its business and hence businesses need to adapt to the micro environment conditions of an industry to remain competitive. Internal factors such as a firm’s culture, its market position and its brand image contribute towards various micro environment factors. Similarly suppliers, competitors in the industry and consumer power also determine the micro environment of a business. Porter’s five force framework highlights five key aspects that represent the micro environment of a business and contribute directly towards the industry competiveness (Pehrsson, 2005: 762). The following section analyses CPW’s micro environment using an internal SWOT analysis and the five force framework.
A SWOT analysis allows an organisation to understand its core strengths and its key weaknesses along with various threats and opportunities for the business (Kotler et al, 2005: 88). It allows the firm to develop its marketing strategy based on its internal micro features. Table 2 presents the SWOT analysis for CPW.
Strengths (CPW Annual Report, 2014: 6-13)
Weaknesses (Euro Monitor, 2014b: 4-17)
Opportunities (Ofcom, 2014: 5)
Threats (Euro Monitor, 2014b: 26)
Table 2: SWOT, CPW-UK
Figure 1 shows the five force framework and highlights key elements that contribute towards the formation of the framework. It can be seen that there are four key elements that contribute directly towards the industry rivalry. Each element here is discussed from CPW’s perspective.
Figure 1: Porter’s Five Force Model (Sirkeci and Cawley, 2011: 77)
Bargaining power of suppliers: Bargaining power of suppliers determines if suppliers in an industry have power over a firm by controlling prices of raw materials, various services and components required by the firm for manufacturing process (Johnson et al, 2011: 56). In this particular case, due to the scale at which CPW operates the bargaining power of the suppliers is considered low (Euro Monitor, 2014b: 66). This is due to the buying power of CPW and the ability of the organisation to capitalise on economies of scale.
Bargaining power of customers: This refers to the ability of consumers and how they can bargain in terms of finding a cheaper product elsewhere. Ofcom (2014: 12) states that the mobile phone industry in the UK is very competitive and therefore offers consumers with a variety of choice. This places the bargaining power of consumers as very high.
Threat of new entrants: This aspect of the framework refers to the attractiveness of the industry and the ability of new comers to operate in the industry (Dibb et al, 2006). Due to the current level of saturation in the retail space it is not possible for new comers to join this space, however the online retailers for mobile phones in the UK have increased over the past few years. Hence the threat of new entrants is considered as medium.
Threat of Substitutes: This factor refers to the ability of individuals to buy substitute products that are offered by a business (Gay et al, 2007). In this particular case the threat of substitutes is very low due to relatively minimal alternates to mobile phones in the market.
Industry Rivalry: The industry rivalry element of the framework refers to the level of competition in the industry (Kotler and Keller, 2012: 56). In this particular case CPW operates in one of the most competitive industries in the UK. Euro Monitor (2014b: 56) states that the UK mobile space from a business perspective is very competitive due to the current offerings by various mobile networks and independent online retailers.
The micro environment analysis highlights the core factors associated with the overall development of CPW’s marketing and development strategy. The key strengths and weaknesses along with opportunities and threats further define a guideline for various marketing decisions that need to be taken by the firm to enhance its presence in the industry.
An important element that impacts marketing decisions is based around the concept of consumer behaviour (Hooley et al, 2012: 156). Understanding consumer behaviour allows organisations to develop marketing strategies based around consumer buying patterns and their perception of the firm. It further enhances the firm’s ability to develop products or services based on consumer perception of the organisation. Figure 2 shows various variables that impact consumer behaviour and hence forms the basis of various marketing strategies for a business.
Figure 2: Consumer Behaviour (Dekel et al, 2007: 251)
Figure 2 indicates that determining consumer behaviour is a complex process, one that is governed by various elements associated to human nature, culture, marketing communication and social behaviour. One of the key aspects that contribute directly towards the buyer’s decision making process is consumer perception. This is developed by various environmental factors and hence influences various marketing decisions of a firm.
Perceptual mapping is used as a method to determine consumers’ perceptions of an organisation (Whitelock, 2012: 344). This then allows the business to develop a marketing strategy that is based on consumers’ perception of the firm. Figure 3 shows the perceptual map for CPW in the UK market.
The perceptual map highlights that CPW is known as an organisation which offers a low cost, high quality service as opposed to its key competitors. Hence the overall marketing mix needs to be developed based on the consumer perception of the organisation.
Figure 3: Perceptual Map, UK mobile phone industry (Euro Monitor, 2014b: 76)
This allows the organisation to develop segmentation, targeting and positioning strategy based on the consumer perception of a firm. The following section highlights key marketing decisions that are impacted by the overall environmental elements of the industry.
This section of the essay highlights how various marketing decisions are developed based on various environmental factors discussed above. The aim here is to highlight core elements linked with effective segmentation, targeted marketing and positioning. The first element of the decision making process is linked with positioning products in the market.
The positioning strategy of a business determines the overall product development process and impacts the marketing strategy developed by a business (Dekel et al, 2007: 244). Effective positioning is based on various environmental factors such as needs of the market, consumer perceptions and macro environment factors. Figure 4 highlights Porter’s generic strategies for market positioning.
Figure 4: Porter’s Generic Market Positioning Strategies (Baker, 2007: 328)
Baines et al (2009: 158) state that each strategy within the matrix is based on the organisation’s position in the market. Firms adapt a relevant strategy based on the industry of operation, current position in the market and the consumer decision making process. . While the position matrix highlights four positions it is common for organisation’s to adapt a hybrid approach depending on their market of operation (Morrish et al, 2011).In the case of CPW, the firm uses a cost leadership strategy with a focus on differentiation to offer unique products to its customers. This is in line with the current situation of the UK mobile industry which is highly competitive.
A marketing mix developed by a business is based on the industry in which it operates. An effective marketing mix allows a firm to determine its core target market and hence strengthens the organisation’s position in the industry. Developing a marketing mix is a fundamental part of a firms marketing strategy (Baines et al, 2009). The 7Ps of marketing was used as the key framework as shown in figure 5.
Figure 5: 7Ps of Marketing (Baines et al, 2009: 77)
Place: This aspect of the framework determines the channel through which a business operates. The place element of the framework determines how a business sells its products and is based on consumer expectations and various industry specific requirements. In the case of CPW the primary channel of operation is through physical retail stores which is supported by an online channel (CPW Annual Report, 2013: 56). The aim here is to meet consumer expectations by offering products through all the channels (physical retail, e-commerce and m-commerce) viable for the industry.
Price: This element of the mix determines the price that the firm will set for its products. It also positions the firm in the market based on the products or services it offers. The price element of the marketing mix is based on competition in the industry and consumer perception. As discussed in section 5.1 CPW’s pricing strategy is to remain competitive and offer the best prices in the high street.
Promotion: The promotion aspect of the marketing mix is linked with the marketing communication element of the business. Johnson et al (2011: 77) state that promotion determines how a business communicates with its target market and hence forms a link between the end user and the organisation. Organisation’s use various strategies for market communication. In the case of CPW the key aspect of marketing communication is through traditional advertisements as well as social media and digital marketing techniques (CPW Annual Report, 2013: 175).
Product: This aspect of the marketing mix determines the type of product a firm needs to offer. The product or service that a business offers is based on the current situation in the market and the demand trends of the industry. It is also impacted by various macro-economic factors of the industry (Baker, 2007: 69). CPW mainly offers mobile phones along with various other connected devices, the firm is focused towards providing the best value for money through top quality products.
People: This element of the marketing mix is linked with the effective training and development of employees and managers (Baines et al, 2009: 78). The aim here is to develop a workforce that is based on the current requirements of the industry as determined by various environmental forces. CPW regularly holds staff training sessions and invests in people to make sure that its employees are up to the standard expected by its key stakeholders (CPW Annual Report, 2013: 44).
Process: Processes are developed based on the expectations of consumers and the legal requirements of the industry. CPW over the years has developed internal processes that comply with the industry standards and further help its customers in choosing the right products. These processes are based on the current requirements of the industry and also help the organisation differentiate itself from the competition.
Physical Environment: Physical environment or evidence is used to add value to existing services offered by organisations (Baines et al, 2009: 78). The firm’s aim here would be to use this aspect to differentiate itself from the competition and enhance its position in the market (CPW Annual Report, 2013: 16).
It is therefore clear that the marketing mix of a business determines how a business positions itself to its target market based on various environmental variables. It is clear from the discussion above that the marketing mix is based on the core environmental factors and hence a firm, in order to develop an effective marketing mix needs to understand the environmental variables of the industry.
The analysis above highlights the importance of understanding various environmental factors. It is clear that macro and micro environmental factors have a direct impact on how an organisation conducts business. From a recommendations point of view it is important to highlight that firms must understand the macro environmental factors such as politics, social behaviour, legal requirements and the economic state of a country as these are directly linked to a business’s performance. Furthermore organisations need to understand the importance of micro environmental factors which determine the competition level in the industry, the firm’s ability to operate in the market and the consumer perception of the organisation in question. By developing a marketing strategy that keeps in context all of the environmental factors an organisation can enhance in position in the market and hence develop products most suited for its core audience. This enables the firm to not only strengthen its position in the market but also enhances its long term sustainability in the industry.
CPW as an organisation needs to take into account the current changing trends in the UK mobile industry and use these to develop a marketing mix that further enhances the firm’s position in the market. Furthermore the organisation needs to develop its strengths further and improve its weaknesses to remain sustainable in this competitive industry.
The analysis also highlights that marketing decisions such positioning, developing the right marketing mix and market segmentation is directly impacted by the external environmental conditions. Therefore understanding environmental conditions of a market is critical for the firm’s growth in any industry.
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