Purpose of PESTLE Analysis

2090 words (8 pages) Essay in Marketing

06/07/17 Marketing Reference this

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In our contemporary society, the company is operating in a complex marketing environment, consisting of uncontrollable forces to which the company must adapt. Hence, it is necessary for the company to examine its marketing environment includes the macro and the micro marketing environment. Some people believe that the company only focuses on micro marketing environment because these are internal factors close to the company that have a direct impact on the organizations strategy. However, the others argue that the wider macro-environment changes may not be as close to the marketing firm’s day-to-day operations, but they are just as important, which are Political-legal factors, Economic factors, Socio-cultural factors and Technological factors.

There are three types of environments which affects a business. They are:

(a) Internal Environment: Internal environment includes staff of the organisation, office technology, wages and finance, etc.

(b) Micro Environment: Micro environment includes the external customers, agents, distributors, suppliers, competitors of the business.

(c)Macro Environment: Macro environment basically involves the Political or legal issues, Economic factors, Socio cultural factors, and Technological factors. And these factors are known as PEST factors.

PURPOSE OF THE PEST ANALYSIS:

There are many purposes for doing the PEST analysis like when we want to expand or start our business in the global market, then by the help of PEST analysis we can assess the perspective market, assess the competitors and standpoint for the perspective business as well.

The main purpose of analysing the PEST in macro-environment is, it is very considerable that we should identify the important factors which might affect or change the vital variables which do influence any company or organization’s supply and demand levels and its costs of production factors. (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993).

In the macro-environment, there are so many factors available which affects heavily the organisation activities. These factors influence the organisation’s Demand and Supply levels to its cost. (Kotter and Schlesinger, 1991; Johnson and Scholes, 1993) . The Rapid Changes is now a part of the environment which gave a heavy impact on the function of the organization. A number of checklists are now in market which can be use in analysing the external and internal issues of the industry. A PEST Analysis is one of them .In the present time PEST Analysis is very essential for an organisation. What PEST Analysis does is, it categorizes the environmental factors into four parts. They are; political, economic, social and technological forces. PEST Analysis analyse the impact of each of the factor on the business. Then a result came out after the analysis. A business then use this result to take advantage of the opportunities and business also use the results to take important decisions for threats while preparing for the business and strategic plans. (Byars, 1991; Cooper, 2000).

It is very much important to understand the market growth or decline, Position and potential of the business and also the direction of operations. For knowing and understanding all this, PEST Analysis is a best tool for an organisation. The factors involve in PEST are actually a framework for analysing the actual situation. (Kotler (1998)). Also to review the strategic direction a company add PEST analysis to SWOT and Porter’s five forces.

1) STRATEGIC PLANNING: Strategic planning of a business is affected not only by internal and external factors but also by the factors available in the macro environment. Pest analysis is the tool which scans and analyse the factor of external environment which are Political, Economic, Social and Technological and called as PEST analysis. These factors affect the business as well as organisation’s activities and operations. PEST Analysis helps business and organisation to know these data and to do strategic planning in a better way.

2) MARKETTING PLANNING: The next important function which PEST helps to do for the business is Marketing Planning.

PEST analyse about the market segmentation and customer segmentation that what segment should be target by the company. It also explain what makes the company’s proposition different to those of competitors, presenting details of why target customers will choose to purchase the company’s product or service. All this can only be possible because of PEST Analysis.

3) BUSINESS AND PRODUCT DEVELOPMENT: As PEST is known as an important tool for the business organization. The next purpose of the PEST is Business development as well as product development. After analysing the factors in external environment PEST shows the result to the business management .On the basis of this result management of the company decides that what to do regarding that, as in if the business require any change or development. And in the same case is the product of the company is requiring any development regarding anything. If result of the analysis displays that business or product are requiring certain changes and development then the management start taking decision and start making plan regarding that.

4) RESEARCH REPORTS: Another purpose of the pest analysis is that it gives the research reports to the business about the external environment which may affect the business and the functions and operations of the business. The steps taken by the business after doing PEST analysis are only depends upon these Research Reports.

5) Ensures that company is performing positively even after the change in the factors which affects business environment. (Porter, 1985).

6) When a company decides to enter into a new market and also a new market of a new country PEST is useful in that also. How is it is, PEST helps the business to adopt the realities of the new environment and also helps to break free unconscious assumptions of the new market in a new country.

INTRODUCTION ABOUT ASDA

ASDA is known as “The one stop shop for every need”. ASDA was started with the vision to make ASDA a one stop shop for all the needs of the consumers. ASDA is a well known supermarket chains located in United Kingdom. Consumer can find any product like food, clothes and also general merchandise items or any item according to their need. ASDA came in the market in 1999 with the well known Wal-Mart. And now ASDA is the second largest retailer in the UK, and it has been the largest subsidiary of the Wal-Mart. ASDA’s scale can be appreciated by the number of stores it runs as well as how many people work for it. For example, it has 321 stores across the UK and Northern Ireland, 29 depots and more than 148,000 colleagues. These all help to generate more than £15 billion of turnover. http://en.wikipedia.org/wiki/Asda

HISTORY:

1920: The Asquith family owned a buttchers shop at knottingely in west York shire. The two brothers, Fred and Peter took over the business and were also the founders of ASDA. Craven Dairies ltd was formed with the help of a group of West Riding Dairy Farmers.

1949: The companies got merged to establish the Associated Dairies & Farm Stores Ltd.

1965: It was only in 1965 that the company got its present name when Associated Diaries came together with Asquith.

1998: The Company started its online store.

1999: ASDA came in the market in 1999 with the well known Wal-Mart. After it became one of the subsidiaries of Wal-Mart there were many super centres opened by both the companies jointly.

2003: The company brought into the market “ASDA living” which was the first general store of the company. It sold a range of products including clothing, toys, home electronics, health products, home wares, as well as beauty products. The company has joined hands with the Compass group that has coffee shops in a few of the stores of the company.

2006: ASDA introduced ASDA Essentials that stocked the products of the company.

2007: The Company launched ASDA electrical that focused on electrical products. This is to compete with Tesco Direct of Tesco. (http://www.about-asda.com/faq/)

The way ASDA has branded and marketed itself, and the current economic climate, the evaluation of external factors using a PEST analysis has been vital in ASDA’s success. Each external factor continues to be examined and classified in terms of whether its significance is large or small, continuous or discontinuous impact or positive or negative implication.

PEST ANALYSIS OF ASDA:

Political Factors

One of the competitive advantages of ASDA has over other competitors is its growth and marking its physical presence everywhere which also raises a concern about ASDA winning over the competition over other retailers. The risk is that quality of products and services will fall and the prices charged will go higher. Till date, ASDA has not been seen as an exploiter but should keep this in mind and should regularly make use of PEST analysis so that its dominance is not taken as exploitation.

In addition, ASDA should be aware of planning permission due to their continued expansion as planning permission is heavily regulated in UK. PEST analysis would help initially to assess the potential success of a store in new area.

Operating in a globalized environment with stores around the global ASDA’s performance is highly influenced by legislative and political conditions of these countries, including the European Union (EU). For employment legislations, the government encourages retailers to provide a mix of job opportunities from lower-paid and locally-based jobs to highly-skilled, higher-paid and centrally-located jobs (Balchin, 1994).

Economic factors

Economic factors are of concern to ASDA and one of the most influential factors on the economy is high unemployment levels, which decreases the effective demand for many goods, adversely affecting the demand required to produce such goods.

These economic factors are largely outside the control of the company, but their effects on performance and the marketing mix can be deep. Although international business is still growing, and is expected to contribute greater amounts to ASDA’s profits over the next few years, the company is still highly dependent on the UK market. Hence, ASDA would be badly affected by any slowdown in the UK food market and are exposed to market concentration risks.

Social/Cultural Factors

Current trends show that British customers have moved towards ‘bulk’ and ‘one-stop’ shopping, which is due to a variety of social changes. ASDA have, therefore, increased the amount of non-food items available for sale.

Demographic changes require consideration such as the aging population, increase in young population, and increase in female workers and a decline in home meal preparation. These changes naturally increase demand of few products like, increase in career minded professional will lead to more demand of ready to eat or microwaveable products. In addition, the focus is now towards operational improvements, own share of business mix and supply chain, which can drive costs out of the business. National retailers are increasingly restraining themselves to take on new suppliers (Clarke, Bennison and Guy, 1994; Datamonitor Report, 2003).

The type of goods and services demanded by consumers depends on their social conditioning, attitudes and beliefs. Nowadays, consumers are becoming more and more health conscious and their attitudes towards food are constantly changing. One example of ASDA keeping up with this change is by adapting an increased demand for organic products by adding it to its product mix.

Technological Factors

Development of many of the products of ASDA has been influenced by the technological advancements. The new technology benefits both customers and company resulting in an increase in customer satisfaction due to involvement of factors like personalised service, readily available goods and convenient shopping. ASDA stores utilizes following technologies:

(i) Electronic shelf- labelling

(ii) Self check out machine

(iii)Wireless devices

(iv) Intelligent scale

(v)Radio frequency identification (RFID)

The implementation of electronic scanners, electronic point of sale (EPOS), electronic funds transfer system (EFTS) has greatly affected the efficiency of stocking and distribution activities, with needs being communicated to supplier within real time (Finch 2004). The other impact on ASDA has been the growth in the use of internet. They have capitalised the opportunity by providing online shopping and delivery service through their website www.asda.com.

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