Macro Environment: New Product Development

As per Bender and Bender (1995), fast foods are broad term used for a restricted menu of foods that lend themselves to production-line techniques; suppliers tend to specialize in products such as hamburgers, pizzas, chicken, or sandwiches”. Smith et al. (2001) clearly demonstrated the production-line approach with specific reference to sandwich production. The fast food industry has grown considerably during the last decade and fast food outlets provide a diverse range of food products. The sheer size of the fast food enterprise guarantees that it has a considerable in¬‚uence on the eating habits of large segments of the population (Fieldhouse, 1996). At present in contemporary world a novel consumer standard of living has emerged about dining of fast food due to the global village, trend shifting & busy life of people. The stipulate for fast food has been mounting radically across the globe. (Fast Food FACTS, Rudd Center for Food Policy and Obesity December-2010), and the trend of fast food is also on the rise in Pakistan from last decade. Therefore need for the new Product development greater than before to get sustainable competitive advantage.

Product Development needs to scan Business Environment, which comprising of Internal & External Environment, Further External environment divided into Micro & Macro Environment (Vignali, C., Vrontis, D, 2003). Macro Environment always plays a vital role in New Product Development as per Vrontis, D., Kogetsidis, H., Stavrou, A. (2006). In this context, to find the impact of Political, Economical, and Socio-Cultural & Technological Factors on marketing activities of Fast Food Industry in Pakistan, the research has been carried out.

In response to a competitive business environment, new product development (NPD) has been playing an essential role in the success of many companies (McCarthy, Tsinopoulos, Allen, & Rose-Anderssen, 2006).

The aim of this research is to find the impact of PEST Factors on New Product Development in Fast Food industry. PEST is a word comprising of four External Factors, i.e. Political, Economic, Socio-cultural & Technology (Goodnow, J.D. and Hansz, J.E. 1972), New product development is an inter-linked sequence of information processing tasks where knowledge of customer needs is translated into final product design (Meybodi, 2003). It is one of the most powerful but difficult activities in business (Clark and Wheelwright, 1995). Business managers and marketing academics alike agree that an essential element of an organization’s long-term survival is success in new product development (Henry et al., 1989). These studies have proved that new product development is crucial to determine the success of new product development process.

Besides that, it is widely known that strategic orientation is important as one of determinant to improve company performance. There are several studies concentrated on the factors determining the success and failure of a new product as well as market orientation on company performance, therefore scanning of environment needed (Cooper, 1979; Maidique and Zirger, 1984; Song and Parry, 1997). In addition, Kwaku and Satyendra (1998) research on strategic orientation and business performance, (Ramaseshan et al., 2002) on marketing orientation and company performance. But, very little of study consider this factor as one of the contributing factors in improving new product development process.

Involvement of marketing strategy in new product development process in developing countries remains unclear. Many of marketing activities influences on new product development process in Fast Food industry is still not been explored comprehensively especially in developing countries particularly the ways of it implications in determining new product development success.

Furthermore, the use of R&D is known as one of important department that should be established within organization to ensure the innovation continuity. For example, Kohli and Jaworski (1990) has mentioned on the importance of market information in business decision. Thus, the role of market research activities in assisting the success of new product development process among Pakistani Fast Food companies is still vague and need to be investigated. Almost, now research work has been carried out regarding PEST analysis in Fast Food industry of Pakistan.

Thus, this paper aims to investigate the impact of PEST on new product development among Fast Food Companies in Pakistan. The paper also considers the NPD effect on the relationships between New Product Development and Sustainable Competitive Advantage.

LITERATURE REVIEW

Due to intense competition in Fast Food Industry, Companies now paying special attention towards New Product Development to attracts more customers & maintain market share. Therefore, now for sustainable competitive advantage not only New Product development needed, but also importance of formulation of strategies for New Product Development considered necessary. New Product Development (NPD) process starts with the situation analysis, where you carefully exposed the Micro & Macro Environment for new opportunities for NPD.

Literature has a lot to say about this subject but few major research results are being passage here. Good companies search for the customer preferences for designing their New Products so products will be according to their customers need (Ronald, 2006)

A new product is a good, service, or idea that is perceived by some potential customers as new (Kotler and Armstrong, 2005). New product can be referred as original products, product improvements, product modifications, and new brands that the firm develops through its own research and development effort. According to David and Nigel (2001), new products and services introductions can be classified according to (1) newness to the market and (2) the extent of customer value created, resulting in the following types of new products:

• Transformational Innovation: products that are radically new and the value created are substantial.

• Substantial Innovation: Products that are significantly new and that can create important value for customers.

• Incremental Innovations: New products that provide improved performance or greater perceived value (or lower cost). An example is a new Coca-Cola flavor.

Booz, Allen and Hamilton (1982) in their study of new product introduction success, propose 6 types of new products based on the degree of newness to the firm and market. These include:

• Radical products, i.e. products that are completely new to the world (10%).

• New product lines, i.e. products that are new to the organizations, but not necessarily new to the markets (20%).

• Additions to product lines, i.e. products that supplement an organization’s established product lines (26%).

• Modified products are existing products that have undergone some major or minor improvements (26%).

• Repositioned products are existing products that are targeted to new market segments (11%).

• Cost reduction products are new products that provide similar performance, but a lower cost (7%).

The Relationship between PEST & New Product Development

Copper (1979) argued that market knowledge and marketing proficiency play the critical role in the outcome of a new product. Projects which were strong on this dimension were those market-oriented activities that were undertaken proficiently (market assessment, market studies, test market).

The study by Cooper and Kleinschmidt (1987) pointed out that in order to upgrade the performance of new product development, the company must first collect related market information; evaluate both internal and external environment and resources and plan development strategies of new products that match business goals. In reality, most new product development teams will use some form of market information in the development and design process – survey results, market trends, focus group testing and so on (Ramaseshan et al., 2002). That means, firms have to gather as much market information to better understand the market needs and wants and give better input for better product development. Thus, it is posited here that market research activities influence new product development:-

It has been widely recognized that marketing’s interaction with other functional departments (e.g., R&D, engineering, finance) plays a critical role in the new product development (NPD) process [Gupta, A. K., Raj, S. P., and Wilemon, D. (1986), Smith, Ken G. & Grimm, Curtis M. (1987), Azizi, Haji Abdul Adis. (2005), Yew, Ng Tee (2002)].

Yet, it has not gone the next step to investigate how marketing achieves influence in such an environment.

Environmental factors influence the independent variables few studies have exhibit different views on different context (Smith and Grimm, 1987 and Azaze et al., 2005). The study by Smith and Grimm (1987) focused on the environmental variation, which includes strategic change and firm performance of railroad deregulation. Their findings showed the important relationship between environmental variation and strategy. It means that most firms change their strategies and outperform those that did not with respect to environmental variation. Consistently, a study by Azaze et al., (2005) on export marketing performance found that certification of environmental factors appeared to moderate a few relationships between product and promotion adaptation, distribution strategy, design strategy and target market specification on export performance in Malaysian furniture industry. However, these contentions are still not strong enough to support the influence of environmental factors on the relationship between market orientation and marketing strategy on new product development.

Situation analysis – environmental scanning

Situation analysis is the ¬rst and one of the most important stages in marketing planning. This is because “a company’s ‘strategic ¬t’ with its environment is central to its strategy Further; effective strategies cannot be developed without ¬rstly analyzing the environment in which the company operates” (Vignali et al., 2003, p. 15). It is suggested that environmental scanning of both the external and internal environments is a necessary prerequisite stage to strategic formulation (Vignali and Vrontis, 2004). The factors that should be analyzed in an internal and external audit are illustrated in Figure 2.

External analysis

The external environment is made up of forces over which a company has limited, if any, control and covers both the macro-environment and the micro-environment. The macro-environment consists of forces such as social, legal, economic, political and technological (SLEPT) factors – within this are included factors such as demographics, green issues and larger societal forces. The micro-environment includes environmental constraints, such as the structure of the market, suppliers, customers, trends of the market and competition (Vignali et al., 2003).

The environment for companies operating in the Fast Food industry is constantly changing. Therefore, it becomes critically important to identify opportunities and threats when formulating strategy for the purpose of gaining competitive advantage.

Macro-environment (PEST):-

This includes all factors that can influence and organization, but that are out of their direct control. A company does not generally influence any laws (although it is accepted that they could lobby or be part of a trade organization). It is continuously changing, and the company needs to be flexible to adapt. There may be aggressive competition and rivalry in a market. Globalization means that there is always the threat of substitute products and new entrants. The wider environment is also ever changing, and the marketer needs to compensate for changes in culture, politics, economics and technology. (Goodnow, J.D. and Hansz, J.E., 1972)

Some important factors listed below as per Renewal Associates (2003) recommended for scanning of PEST.

Political

ecological/environmental issues

current legislation home market

future legislation

regulatory bodies and processes

government policies

government term and change

trading policies

funding, grants and initiatives

home market lobbying/pressure groups

Economic

home economy situation

home economy trends

overseas economies and trends

general taxation issues

taxation specific to product/services

seasonality/weather issues

market and trade cycles

specific industry factors

market routes and distribution trends

customer/end-user drivers

interest and exchange rates

Social

lifestyle trends

demographics

consumer attitudes and opinions

media views

law changes affecting social factors

brand, company, technology image

consumer buying patterns

fashion and role models

major events and influences

buying access and trends

ethnic/religious factors

advertising and publicity

Technological

competing technology development

research funding

associated/dependent technologies

replacement technology/solutions

maturity of technology

manufacturing maturity and capacity

information and communications

consumer buying mechanisms/technology

technology legislation

innovation potential

technology access, licensing, patents

Intellectual property issues

The Relationship between New Product Development & Sustainable Competitive Advantage

According to Ramaseshan et al., (2002), new products are essential to the survival and long-term growth of any firm. Success in new product development is a critical management issue particularly in technology driven firms. Managers of new products have little guidance on how to improve or redirect their organization’s external orientation towards their product target market.

In particular, Yew (2002) suggests that a firm must develop and sustain competitive advantage in order to archive superior business performance. In that study, the author concluded that market orientation of business environment is an important determinant for the success of the new product development. Building an understanding of this relationship could help to achieve higher performance for the new product development that included overall business performance, firm’s profitability, sales revenue, customer satisfaction and technical performance of the products.

Due to culture, demographics, geographic of a region, religion, and or any other attributes, there is almost no consensus in the literature regarding PEST factors affect uniformly among researchers. It can be vary form one region to another. However, Renewal Associates (2003) urbanized PEST factor sheet/ instrument to find out the degree of the dimensions of PEST, It consists of above 40 items that are coupled into four different dimensions namely 1-Political, 2-Economical, 3-Socio-Cultural;

and 5-Technolical.

This instrument is based on the differences between the perceptions and expectations of Marketing Manager regarding the dimensions of PEST. The difference between the perceptions and expectations indicates the existence of a gap. The instrument has been adapted depending on the industry in which the research has been conducted.

The model in this study mentioned below to find the exact relationship in between Macro Environment (PEST Factors) & New Product Development. How fast Food Companies using PEST Factors sheet to scan the environment for New Product Development & how PEST factors guides the companies for the product as per requirement of Customers.

Second, this study also focuses to analyze the link behind the Sustainable Completive Advantage via New Product Development. Are Companies being paid in form sustainable Competitive Advantage, If companies doing PEST analysis for New Product Development in Pakistan?

This link already proved in literature

Macro Environment

(PEST Analysis)

Sustainable Competitive Advantage

We want to analyze that how the Macro Environment (PEST factors) affecting the N.P.D processes.

How PEST factor sheet guide fast food industry to launch new products in market?

N.P.D

Political Factors

Economical Factors

Socio-Cultural Factors

Technological Factors

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METHODOLOGY

The purpose behind this study is to investigate the link in between Macro Environment (PEST Factors) & New Product Development for Sustainable Competitive Advantage in Fast Food Industry of Pakistan. All Fast Food industry Pakistan is the population of this study. A sample of 7 Fast Food Companies is selected including 03 International (Co. A, B & C) & 03-National (Co. W, X, Y & Z).

A convenience sampling, non-probability sampling design, method was used due to its consideration as more appropriate to collect the Data. Convenience sampling was used due to its easily accessibility of customers & data collection is easy, required less time as compare to others methods & furthermore data can be collect from the members of the sample that are near. As Food and Nutrition Technical Assistance Project (FANTA 1997) that non-probability samples are not complicated and Economical than others probability sample’s. To collect the required information from Fast Food Companies,

A-personal contact approach’ is also used; more the researcher clarified the queries of respondent raised by any.

The methodology used for Survey is Questionnaire. A survey is a means of gathering information about a particular population by sampling some of its members, usually through a system of standardized questions. Surveys can be conducted by mail, telephone, personal interview, or Internet. They can be administered either to individuals or groups. The primary purpose of a survey is to elicit information which, after evaluation, results in a profile or statistical characterization of the population sampled. Questions may be related to behaviors, beliefs, attitudes, and/or characteristics of those who are surveyed. Questionnaires structure included open ended & closed ended Question. A 5-point Likert Scale (Ranging from strongly disagree=1 to strongly agree=5 used for collecting of required information.

The Questionnaire was divided into two sections.

Demographic of the Companies

The last section dealt with the respondents’ retort towards PEST. Statistical Package for Social Science (SPSS Version 17) package used to analyze the data set. A frequency distribution was used to describe the sample. The mean and standard deviations of the attributes will also be computed. Finally, Factor & Discriminate analysis will be used to test the exact describe variability among observed variables in terms of a potentially lower number of unobserved variables called factors and to predict group membership based on a linear combination of the interval variables respectively.

The questionnaire designed for this study was based on the widely accepted Renewal Associates 2003 PEST Factor sheets. A total of 44 attributes were categorized under four dimensions.