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The purpose of the following report is to reflect an examination of the current broader factors which have induced HMV and to provide recommendations on how the organization can reciprocate to them in order to improve its performance.
The analysis executed pleads that two of most relevant impacts in the industry were the technological and economical environment. The recent development of new electronic devices has not only caused positive impacts but also negative ones. This has meant the loss of certain targeted markets as the demand on DVDs and CDs reduced in contrast with the growth of the demand of MP3s, iPods and other musical and visual players. Moreover, the popularity of file-sharing and downloading along with the increase of supermarket selling brick-and-mortar have also been reason of diminution of sales.
It further discusses how the entertainment industry became ahead of purchasing cuts after the recession started in 2008 as people perceived some of its forms as dispensable. Further researching discloses the laws dictated by the government in order to defeat piracy (illegal selling and downloading of material) which was another major issue demolishing the industry. Finally, the case study examines the social factors affecting the ambiance which are the convenience of online shopping and the growth of unawareness of the gravity of digital piracy.
The possible recommendations that HMV can make use of in order to adapt itself to the environment are the following:
Improving its online service by offering better prices than their competitors.
Concentration on selling digital material online rather than physical (CD, DVD).
Implantation of activities in store which involves the customer.
This case study analyses the external environment affecting HMV, one of the most well extended entertainment distributors in the world.
"HMV Retail operates through 243 HMV branded stores in the UK, Ireland, Hong Kong and Singapore"
HMV group (2012).
It is a company specialised in the distribution of games, music, videos and portable digital technological elements. It also offers a range of live entertainment festivals and venues as part of its marketing strategy. Nonetheless, it has suffered grave impacts over the last few years which have made it lose its position in the market share. These are the factors that the retailer company has no control over: recession, crisis, development of technology, social trends and attitudes, etc.
The company needs to be aware of these influences in order to defeat them but this is not an easy task as there are certain existing barriers that are preventing it from reaching success. It needs to break those barriers by considering the impacts as opportunities to reinforce its business rather than threats to devastate it. Some of them have already been destroyed but it still needs to find solutions to surpass the rest. Despite this whole situation, the company has positives attitudes towards the future.
The information found in this document has clearly been divided into different sections and each of them gives a key idea of the some of the macro-environmental impacts that the company has suffered. The analytical structure used is SLEPT, one of the most appropriate models as it gives an eloquent understanding of the full image of the external ambiance in which a company functions and an understanding of the direction it is taking.
3.1 TECHNOLOGICAL FACTORS
In recent days, the development of technology has changed the way businesses operate . It has brought progression and it has given way to the creation of new businesses focused on its advance.
"Technology can reduce costs, improve quality and lead to innovation"
Oxford University Press (2007).
3.1.1 MANIFESTATION OF NEW WAYS TO PLAY MUSIC AND VIDEOS
New devices appear constantly substituting the old gadgets. MP3, IPod and Android have replaced the CD and DVD players. This evolution is opening new possibilities on distribution of digital content. The use of portables with high capability has redefined the access to music and videos and how they are being listened and watched (Designed Council, no date). The liking for them is increasingly present as their benefits become more attractive as time goes. One iPod or other similar player can store hundreds of songs and images."The functionality of these terminals is being combined in an attempt of maximizing the utility and avoiding the need of carrying different devices".
Guerrero et al (2008)
This is one of the difficulties that HMV is currently facing. There are fewer consumers who opt to buy from theirs stores because of the desire of having a CD or buying a DVD.
"Electronics have made possible the content accumulation and the immediate enjoyment by breaking the old model most effective"
Figure 1 (HMV group) provides a full picture of the performance of the company between the periods 2007-2009 and 2012-2013. It is noticeable that the sale of music and visual material has experienced a great impact in the financial year 2012-2013 compared with previous period of sales. The sale of music has decreased by 10% and the sale of visual material has reduced by 6%. However, there is also an increase of 6% in the purchase of technology.
Figure 1: HMV market sales between 2007 - 2009 and 2012-2013 (Source: HMV group, no date). SalesMix_pies.png
What could probably happen from now on is that the reduction on purchasing on CD and DVD will continue as long as the development of technologic devices persists because consumers tend to leave old ways whenever technology presents new methods as it simplifies the way life is lived (Garcia, 2012).
3.1.2 DOWNLOADING AND FILE SHARING
Recent progress in technology has led to an increase in downloading and file-sharing. As a result, smaller companies, such as Game, are in risk of bankruptcy (Centre for Retail Research, 2012) due to a decrease in purchasing power from consumers. Nevertheless, HMV still stands regardless of facing competition from online services, such as Amazon and EBay, by lowering the price of its products (Love It Loud, 2012).
HMV has observed the popularity of this fact. For that reason, they plan to make use of new initiatives and digital marketing in order to position itself as powerful multichannel retailer and repress its high street business deterioration (Baker, 2012).
As HMV spokesman said : "the company continues with the transformation of its retail offer in response to the changing way that people now discover and enjoy entertainment content (Internet Retaining, 2012).
It is obvious that this technological aspect has helped HMV to find new ways to reach their customers. However, it has also opened doors for new competitors to boost their sales, like the case of Amazon, this year, for the first time in their history, their income received indicates that the sales of media has been far superior than the sales of electronics and other products (Statista, 2012).
3.2 POLITICAL AND LEGAL FACTORS
They consist on those regulations and laws that the government dictates in order to protect those issues that could affect unfairly the whole business environment. They may not change as frequent as other external factors do. However, companies need to be aware of their recent interpretations as they may be reason of changes in the function of the business.
3.2.1 ENVIRONMENTAL PROTECTION LAWS
"Those are the policies and proceduresÂ aimed at conserving theÂ natural resources, preserving theÂ current stateÂ ofÂ natural environmentÂ and, where possible, reversing its degradation"
Business Dictionary (no date).
One of the main environmental protection laws that has affected the entertainment industry and, in particular, HMV is the UK Waste Electrical and Electronic Equipment (WEEE) Regulations (SI 2006 No. 3289). It forces the business engaged with the supply of electrical elements to actively support the recycling and collection of WEEE. Moreover, they are obliged to motivate customers to recycle electrical products.
The purpose of this legislation is to promote the reuse of recycled electronic goods and the reduction of negative environmental impacts.
HMV has made use of this opportunity as a way to enhance the good image of the company. They show their consciousness by joining to other retailers in the 'Distributor Take Back Scheme' which involves the payment towards the supplying of better recycling facilities (HMV Group, no date).
3.2.2 EMPLOYEMENT LAW
This legislation not only protects the rights of the employee towards the company but also the rights of the employer towards its workers. The purpose of this law is to create an acceptable employee-employer relationship based on the establishment of rights and responsibilities. They are related to issues such as minimum wage, health and safety, equal opportunities and many others.
HMV has gone through several disappointing performances which have caused the closure of many of their stores nationwide (Owen, 2011). Those closures meant the loss of jobs for some of its employees. However, despite losing this, they were protected by the tax and termination of employment law which determines that they must be paid by the company as their contract termination was out of their decision. This law has clearly affected the entertainment retailer as it has not been obtaining enough income in order to cover all their expenses including the wages of their staff members (Durrani, 2011).
This law has probably been one of the most concerning ones currently impacting the company as the cease of some of their stores is continuing.
3.2.3 ANTI-PIRACY LAWS
Downloading has been a revolution in the recreation industry. However, it has given the power of control to the consumer. This has been the cause of the rise of illegal downloading not only in the UK but also worldwide. Therefore, the government has dictated laws protecting the rights of the authors and also regulations with grave consequences if they become infringed. For instance, The Copyright, Designs and Patents Act 1988 stands for the protection of copyrighted materials (The UK Copyright service, no date). This law is really strict as its breaking is considered as criminal offence which could lead to the payment of a penalty or even imprisonment.
A legislation system called Digital economy Act 2010 has been imposed in order to enhance the ease of detecting and suing continuous infringers.
Piracy is one of the biggest fears that the entertainment industry is facing as it seems to be unmanageable and unstoppable (Youngs, 2010).
3.3 ECONOMIC FACTORS
"Economy is a total system within which material and energy inputs are processed and converted to finished goods and services for distribution and final use"
Adcock (2001 p: 45).
The external economic environment is an intricate chain of regional and international impacts which inevitably affects companies by determining their performance. However, it is currently impacting negatively some companies more than others. This is the case of the recreation industry. Companies like HMV are going through difficulties caused by recession, crisis, and low price competitors.
3.3.1 DIMINUTION OF CONSUMPTION
After the financial crisis started in 2008, a lot of companies in every industry started shrinking and society started being affected. Consequently, consumers began to watch their money and prioritize products. This issue put the entertainment sector ahead of purchasing cuts. Furthermore, used and economical products were being more contemplated than standardised goods.
Figure 2: Spending by product in Q2 2012 (Source: Office of National Statistics) According to the Office of National Statistics, the consumption in recreation and culture is currently apportioning in the negative growth along with the spending on hotels, restaurants, food, drink, alcohol, miscellaneous, health, clothing and communication while it is being positive on education, household goods and services, housing and transports. This indicates that people are generally more concerned about spending money on basic needs rather than on optional services or products. The bar chart below [figure 2 (Office of National Statistics)] shows the percentage of declination or rising for each of the sectors. contributiontogrowthq22012graph_tcm77-280183.png
The fact is that some forms of entertainment are being perceived as dispensable. Therefore, the purchasing in those sectors is becoming minor. This could mean that one of the reasons why HMV is not being too successful is probably because is playing in a ground which is not being considered as essential for life.
3.3.2 SUPERMARKETS DISTRIBUITORS OF NON-FOOD
Supermarkets are the principle brick-and-mortar material retailers in the UK as HMV is applying less concentration on CD and DVD sales in order to adapt itself to the technological era. Nevertheless, the supermarket tend to supply top material sold at low prices in interest of instigating customers to come into the store resulting the diminution of its materials with limited accessible option (Mintel,2012).
Recent researches have indicated that one of seven high street stores stands desert. The fear is growing because further extension of supermarket firms would be a clear threat for the perseverance of the retailers.
This factor is not only affecting this market but also clothing, electronics and furniture as their intention is to widen their product range.
"One out of 3 CDs/DVDs in the world is an illegal copy. This represents 2.8 billions of pounds in sales. Piracy is increasing worldwide, 50% of the music and visual material sold in 31 countries is not legal"
Piracy is an unjust act hard to measure. It is an unpredictable as most of the times the owners of the music or film are not aware of who uploads their material on the internet or burn it on CDs or DVDs. It devaluates the price of the original product which cost certain amount of money to create. Moreover, those who benefits from it practise this action without allowance and they obtain a profit which does not belong to them.
Every time that an individual buys and illegal copy, legal sellers lose the chance to sell one of their stocks.
The firms who sell the legal product feel pressure as their goods do not get sell because many consumers perceive that authentic material is sometimes overpriced (International Chamber of Commerce, 2009).
3.4 SOCIAL FACTORS
The social environment might possible be among the most fundamental factors affecting the external ambiance of a company. It embraces the "facts and experiences that influence individuals' personality, attitudes and lifestyle" (Business Dictionary, no date) towards purchasing a product.
The awareness of its changes is crucial in order for a company to position correctly their product in the market as its success depends on how it reflects the customers' needs.
Recent studies have indicated that one major factor influencing consumers to buy online is convenience (Lodorfos, 2006). Online shopping provides different benefits that cannot be obtained from physical shopping, for instance, online websites are generally accessible 24 hours while stores are opened for certain period during the day. There is no need to travel when buying online; one can acquire the products from the commodity of home.
When it comes to music and video, people are more interested in downloading material, therefore, the best place for them to buy it is online. There are many websites that consumers can choose to buy from. They can compare the prices of the same product sold by different companies while it is impossible to find one same product at different prices in the same store. They do not need to wait outside the store for the latest CD of their favourite group or singer because they can purchase or download it online.
HMV is aware of this interest and for that reason they have also introduced an online service which suits the need of this type of consumer. They website offers from a range of brick-and-mortar CDs, DVDs and videogames to downloadable material at reasonable prices (HMV Group, no date). This demonstrates that the company analyses appropriately some of the issues happening outside world that can implicate changes in their business.
3.4.2 SOCIAL UNAWARENESS
The access to information and culture has been facilitated due to the presence of the Internet. Part of its content can sometimes be obtained free of charge. However, this issue has misled people by causing the belief that everything can be found for free if a good research is done.
The fact that those materials are being supplied freely (or underpriced) and possessed easily has supposed a worry for the representatives of the entertainment sector. Studies have suggested that the consumers of pirated material considered that it was not too prejudicial for the entertainment industry and they do not see the act as immoral (Ang et al. 2001).
This is an important element to have in mind because it is demonstrating that the consumers are unaware that piracy is a wrong act and therefore they will keep acquiring until they understand how it impacts the entertainment market.
HMV needs to offer better prices for its products in store and especially online. A lot of competences have recently appeared offering downloadable material at economical prices and, considering the financial circumstances of the company, there is need to reframe prices. By reducing the charge, the customers would probably draw more attention to the firm. Nevertheless, they must not reduce too much the prices of the physical material as that could made question its authenticity and quality. Consumers always seek four main things when they purchase: low prices, good customer service, high quality and specific products (Diamond, 2010). If the business achieves that, the customers will come back. However, it is really hard for a company to deliver all those four ideas at the same time.
The company should focus more on the distribution of virtual material rather than brick-and-mortar as technological innovations are taking more relevance. It can clearly be seen in the statistics that the purchasing of these products has declined in contrast with the rise of purchasing of hi-tech devices (figure 1). Looking at the climate, it seems that the consumption of discs does not have too much future (Pfeiffer Consulting, 2007). Therefore, the best thing HMV can do is to be prepared to adapt to the new developments.
The store operation could enhance if they create activities that can get the customers involved. This action would probably attract more the youth and, maybe, make HMV the first option for some. It could consist in the introduction of exciting activities such as video game competitions where the winner could get a prize. This can even be used a tool to make advertising as people will be talking about it.
HMV could consider these suggestions as the good function of the company is wanted. They need to keep analysing the environment because it can be a key to generate new opportunities. Therefore, it is important not to miss any detail of what is happening outside the business.
HMV has recently gone through a lot of difficulties that generate concern among customers. Whether the company is going to stand for long is something which many people doubt. However, it has demonstrated that it can still prevail despite hardness. It is indubitable that the company is strong and capable. The financial situation is the first priority for the business. Therefore, they are applying different strategy in order to settle it by reducing the dispensable costs. Nonetheless, they also need to find prolonged strategies to improve their activities in contemplation of attaining it position in the industry.
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