PEST Analysis of Currys
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Currys of the United Kingdom is a retailing company, which specializes on electronic products and equipment. The company belongs to DSG International Corporation and has several international branches, including those in Italy and Spain. Until late 1990s, Currys boasted one of the highest sales rates in the industry. However, starting 2000s, the company entered the period of decline, which led to the 27% drop in the costs of company's share and two consecutive profit alerts: all in 2008 (BBS News 2008). This essay observes the marketing position of the company in terms of external forces, internal capabilities, and managerial strategies to identify the conditions that cause Currys' poor performance.
To analyze an organization from strategic management point of view, it is necessary to start by drafting an appropriate framework. Such framework needs to address the organization's external environment and internal resources and capabilities not as static and isolated from each other components, but rather as interrelated dynamic elements that contribute to one specific process: the performance of the organization in the chosen market.
The model by Thompson and Martin is used for the purposes of this paper because its layered-circles approach to presenting a business environment of the organization allows to visualize the concept of integration and interconnection of all the business environment's sectors (2005, p. 146). Moreover, the concentric organization of the chart defines the logics of analysis, in which the review of the business environment starts with the general overview of the effects that global changes have on the company's performance; then these effects are filtered through “closer” company-specific socio-economical context.
PEST analysis is traditionally used to categorize “environmental influences as [political economic, social, and technological forces” (Thompson & Martin 2005, p. 169). However, since Currys is dealing with environment-sensitive and legislation-sensitive products - for example, home electrics and computer software respectively -- it is necessary to add the model with environmental and legal forces to have a well-rounded PESTEL analysis.
Among the political issues that have the most noticeable influence on Currys' performance are first, the fact that the United Kingdom remains “outside of the single European currency” realm and second, the war in Iraq (Thompson & Martin 2005, p. 169). The market analysts, usually, relate the retention of British currency with overpricing or underpricing of imported products; however, in a case with Currys, the effect is not universal. On one hand, since the position of the pound in the global market is stronger than that of the American dollar, the price of the products imported from the United States to the United Kingdom - though the contracts with Dell or Microsoft - is reasonable as related to the income of an average British consumer of electric goods. On the other hand, the strong position of the pound as related to euro might have quite an opposite effect on the prices at Currys' European branches. The Italian branch of the company is continuously discussed in the media as deeply troubled in its sales performance; and one of the reasons for the “arm's” failure might be the fluctuation of the exchange rates of the dollar and the euro (Clark 2008, p. 37). The war in Iraq, even though, seemingly unrelated to the retailing industry, has its indirect impact on Currys by affecting overall national economy. Specifically, the initial political decision to support Americans in Iraq resulted first, in the expenditures on sending, sustaining, and removing the troops from the Middle East; second, in the inability to control the price of gas; and finally, in the necessity to deal with domestic terrorism
The economical environment of Currys' activities is currently the most threatening among all the PESTEL forces. The rearrangement of national internal resources, mentioned in the paragraph above, causes the inability of the government to support internal financial affairs: the national monetary policy committee has not approved of the hold on mortgage interest rates and has claimed the hold proposed by the Bank of England to be “tipping the economy into recession” (West 2008). As the mortgage rates go up, so do “the living costs, council tax, petrol, energy bills, and transport” (The Times 2008). However, the dramatic increase in population's expenses does not match the slow growth of the salaries. As a result, as the population's disposable income becomes smaller, Currys' customers “shun big-ticket items [and go] bargainhunting” and become “increasingly promotion and deal driven” (The Times 2008; Muspratt 2008, p. 11a).
As to the socio-cultural forces, one of the issues that affect Currys' internal structure as well as external business environment is the cultural particularities of the countries, where the company has its branches. The research shows that the discrepancies in characteristics of the national cultures, as reflected in specific organizational cultures, are not always transferable to a different socio-cultural context (Jackson 2002, pp. 25-27). Thus, the “deep-rooted structural issues of the Italian branch” can be partially explained by the contrasting styles of “doing business” as adopted by Italians and Brits (Evening Standard 2007). Another socio-cultural trend developed in the recent decade is the growing isolation of the consumers: an inadequate income level leads people to getting second jobs, to working on weekends, and to reducing the amount of leisure time, which used to include shopping. Today's customers view shopping experience from the point of view of convenience rather than socialization. Thus, they prefer the one-stopshopping supermarkets like Tesco or all-the-stores shopping centers like the Internet rather than narrowly specialized brick-and-mortar Currys.
The fast growing field of consumer technology could have had a positive effect on Currys since the company's activities are focused on the retailing market of electronics. However, the consequences of technological advancement are quite the opposite. First, new technological capabilities of the companies-producers allow them to upgrade their products more often than they used to do just a decade ago: it took Apple less than one week to investigate the defects of iPhone and to “reinvent” the device. Because of the quick electronic products' turnover, the customers do not buy extended warranty plans, which used to be the core products of Currys (Cellan-Jones 2008). In addition, the necessity to choose from a larger variety of similar products positively affected the customers' need for self-education. The majority of new generation customers do not need an advice from a salesperson: they do their research online through the Customer Generated Media and arrive to the store knowing what they are going to buy (Cellan- Jones 2008; Hart & Blackshaw 2005, p.26). Overall, technological changes have rather negative than positive effect on Currys' strategy aimed at naive customers, who need a professional advice to make a long-term investments in big-ticket products.
Finally, the effects of the last two forces - environmental and legal - are related to the decreasing size of global oil resources, to the intensified “green” activism, and to the legal regulations of software pirating. Currently, most of the areas of the United Kingdom experience unfavorable weather conditions; thus, Currys' sales of home electric equipment are and will remain balanced in the nearest future. The positive effect of global warming and “green” activism resulted in the invention of a variety of energy saving devices. By today, Currys is the exclusive vendor of two of them - the SMJ Energy Saving Plug Adapter and the USBCELL AAA battery - which strengthens the company' position in the market (Irish Times 2007; M2PressWIRE 2007). However, on the negative side, the lack of preciseness of the current legal regulations regarding software pirates caused a significant drop in the company' sales of software: the customers voted for cheaper pirate versions (Evening Standard 2008).
To summarize the above, overall the PESTEL analysis of Currys' business environment delivers unimpressive results: all the six external forces have significant negative effect on the conditions of the market and the purchasing power of the consumers. The only two positive for the company environmental trends are balanced out by more profound alarming developments in the field. Further analysis of the immediate business context and the company's response to it would clarify the prospective of Currys in the retail market.
According to Thompson and Martin's chart, the main elements of the immediate business context are the suppliers, the customers, and the competitors (2005, p. 146). To create a better understanding of Currys' presence in the market, it is beneficial to look at them first, as a complex whole, and then, as individual players affecting the company's performance. Porter's five-force model (Figure 2) of industry analysis is used as the framework for the latter.
The threat of new entrances in the area of electronics retailing is extremely high; it is augmented by the multidimensional nature of the competition in this industry. First, the time when retailers specialized on specific products has passed. The consumers' demand for convenient one-stop shopping urged supermarket chains, such as Tesco and Asda, to apply horizontal diversification to their marketing strategies and to add more customers by adding seemingly unrelated products (Foster 2008, p. 4j; David 1989, p. 69).
Thus, immediately after Currys signed up a contract with Dell as the European distributor of the company's new computers, Tesco followed up by signing the same contract outlining the same European areas of distribution (Collins 2007; M2PressWIRE 2007). Technically, Tesco is not in the same industry as Currys; however, for a supermarket giant like Tesco the entrance barriers between grocery retailing and computer retailing are almost nonexistent. Second, the international barriers of the retailing industries have become transparent: Fnac has recently announced its intent to open a 50,000 square feet store in central London (Evening Standard 2008, p. 5). This ambitious project will make the French electrics retailer the largest industry player in London area. Finally, the market of electrical equipment has expanded to include the Internet. Such companies as Amazon.com and Overstock.com have no significant capital requirements to enter this market because they operate as intermediate between the producers and the customers; they have no warehousing facilities and a limited number of employees, whose daily activities do not depend on the specific characteristics of the industry. To summarize, the new entrants in Currys' market have the experience in similar to Currys' activities (with different products) and the necessary operational structures in place. Therefore, their capital requirements are minimal, they have necessary experience, they have or can get access to the same suppliers, and they can sell the same products at lower prices because of their virtual setting or the distribution of profits among the range of products.
The overpopulation caused by the blending of the companies within retailing industry significantly increased the bargaining power of the suppliers: there is a limited number of known and respected producers of electrical products; however, each country can boast at least two supermarket chains, which do not differ much from each other. In fact, many retailing companies build their reputation on the brand of the producer they are associated with. In this context, the producers have a power to choose their distributors and negotiate favorable contractual agreements.
Similar reasons explain the high bargaining power of the buyers in Currys' market: there are numerous retailers that offer the same products produced by the few known companies. Therefore, when buying a computer, the customers buy it from Dell, rather than from Dell's intermediary Currys. Thus, if the same Dell computer were offered at a more convenient location - preferably on the Internet, accessed from home - and at a better price, the clients would buy it from the retailers like Amazon.com not from Currys.
In addition, Currys' overall product - product plus service - does not have a definitive exclusiveness. As it was mentioned above, the company sells the same few brads as other members of the industry. These brands provide various quality of the products, which Currys cannot control. In some cases, it results in harmed corporate reputation as in the situation with Microsoft's Vista, which poor quality caused Currys not only customers' grief but also serious monetary losses due to forced discounts (The Times 2007). In an attempt to add value to the customers' shopping and using experience, Currys offers The Tech Guys: a computer installation and maintenance service. However, this service is stationed at the store, which is inconvenient for the customers experiencing problems with their equipment in the office or at home. A threat of a product substitute in Currys market is realized in a threat of a joint venture, which will offer convenient at-home or in-the-office shopping opportunities and reliable quality products, which would arrive supported by on-call technical support delivered to the office or home.
Logically, the rivalry among existing competitors in the market is extremely intense. In addition to major new entrants mentioned earlier, there is a constantly growing number of individual entrepreneurs, who work with limited number of private buyers. In addition, large corporations often establish a department, which fulfills the role of an intermediate between the producer and the corporation. Thus, to regain its positions in the market, Currys needs to redesign its marketing strategy.
To initiate the discussion, the company has to evaluate its performance based on the new consumer-oriented marketing mix. Smith et al. argue that in the contemporary market context, the producer as well as retailer have no opportunity to control the consumers' shopping behavior: Internet stores as well as many supermarkets are accessible seven days a week 24 hours a day (2005, p. 21). In addition, a more flexible working schedule results in relatively constant and large flows of customers in and out of the store/webpage throughout the day. If we combine this difficulty of customized in-store attention to each customer with the social isolation of the customers as a whole, it is logical to conclude that most of the time, the customers make their choices independently from the producer and/or retailer and from each other. The traditional marketing mix does not perform an adequate analysis of the market, because it relies on the provider's view of the situation: in the new market economy, the provider does not have enough information about the client. Ace continues this discussion by suggesting that the content of the traditional four + three Ps mix as a customer-centered model should become a seven Cs mix: choice, cost, convenience, communication, care, corporate competence, and consistency instead of product, price, place, promotion, people, processes, and physical evidences (2002, p. 13). This model has been initially developed for online companies; however, it was proved successful for regular offline companies as well as the companies that have both online and offline representations.
As follows from the previous discussion, Currys does not offer its customers a wider than other companies range of choice nor one-of-a-kind elitist choices. The cost of the choices is higher than that of online businesses or supermarkets, unless Currys offers discounts; however, the company cannot afford to cut the prices for each single product. The convenience has already been discussed before: the company offers its products mainly through the stores with a small portion of purchases made online on the Currys' webpage. The Tech Guys services are provided in the stores only. Aside from the fact that the necessity to go to the store for electronics shopping is inconvenient for a variety of reasons, the firm's compliance to the brick-and-mortar form deprives Currys of the opportunity to collect more information about their consumers and to generate a client-driven database. Such a database can be easily created through online communication with the clients; and it allows the companies to customize their messages.
As to communication, Currys has knowledgeable and well-trained consultants in the stores; however, modern sophisticated and busy buyers rarely need advice on their choices and do not have time for establishing relationships with the store personnel. Currys also has an online representation, but its e-communication is mainly led in a form of a monologue through lengthy informative postings. The clients have a limited opportunity to communicate back to the company or among each other; Currys' clients remain isolated and their loyalty to the company is not supported by the strong personal relationships either with the company or with other clients of the company. Scarcity of dialogical interactions with the client results in a perception of Currys offering insufficient care for the clients; the perception is reinforced by the lack of convenience. Finally, the company's corporate competence and consistency highly depend on the performance of their suppliers, which is not always predictable. The products' quality fluctuations influence the company's image and the attitude of the customers.
In conclusion, it has not been long since Currys has been one of the leading companies in the retailing industry. The overwhelming changes that happened in the market in a short period did not allow the company to recognize the fact that the used-to-be-successful strategy does not work in the market, where the products and the customers change overnight. As a result, today Currys is one of many comparably equal participants in a highly competitive market, in which there is a high risk of new entrants and the product substitutes and in which the bargaining power of both the suppliers and the buyers is continuously growing. As it is displayed by the seven Cs mix analysis, Currys fails to create an added value of shopping experience for its clients. The possible revival strategy for Currys can be horizontal diversification by adding a unique to the industry service: for example, adding in-store classes for corporate system administrators. Another applicable marketing strategy is to organize a joint venture with a charitable or publicly owned organization and to start developing an untapped market of disadvantaged populations nationally and internationally: elderly people or people in rural areas, who would buy a computer if there were a consultant to guide them through the process. Currys is currently bidding to work on the project related to preparing elderly people to switch to digital television (Butler 2007, p. 53). This might become an initiation of the new strategy, which will define Currys' prospective in the 21-century's retailing market.
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