Evaluation of PESTEL Factors - Essay Example

When the macro environment is being analyzed, it is crucial to identify those factors that may in turn affect various vital variables which may influence the demand, supply and cost levels of an organization. The dynamic nature of society and the radical changes constantly faced create an atmosphere of uncertainty and as a result, can have an undesirable impact on the functions of the whole organization. PESTEL analysis is a business measurement tool. PESTEL is an acronym for “political, economic, social, technological, environmental and legal factors. Initially it started with incorporating the first four components and was composed as pest(Floyd,2001). However, later, analysts decided to extend it and include the last two factors as well, giving rise to PESTEL. A PESTEL analysis essentially measures a market. It can be used in conducting marketing and business development related assessments, and can assist in the decision making process of an organization(Hall,2008). It must be noted that the Beatles’ store in London, is a real treat for all the diehard fans of the infamous UK based band called “the Beatles’ of the 1960s. A large range of memorabilia, ranging from clothing, bags, mugs, and magnets, to miniature guitars, drum kits, old and new records, various autographed items and figurines, everything Beatles related can be found at the store. The store is located at baker street, which was an area originally high class residential, but now is mainly occupied by commercial premises. To gain a better understanding, each factor must be broken down and each component needs to be analyzed separately. Political factors address the degree to which a government can intervene in an economy. These factors primarily include tariffs, tax policy, trade restrictions, provision of merit goods, restrictions on demerit goods etc(Middleton,2007). it may also include education, health and a nations infrastructure, all of which are greatly influenced by government intervention. One basic legal legislation that may hamper sales for the store is the decision of the government to impose a GST of 20% (increased from the initial 17.5%) in January 3 2011(Jones,1998). Economic factors include the basic economic ideals such as interest rate, exchange rates, inflation rates, unemployment rate and economic growth. These factors have a massive impact on a businesses operating activities. For example, the inflation rate can determine whether or not people will consume certain goods and services given their real incomes at current inflation rate. Economic conditions affect the feasibility of success and profit at any given time, as they have an impact on capital availability, demand and cost. If the demand is extremely high and coupled with low economic cost, it will be profitable for the firm to invest in such a business(Libecap, 1996). The kind of strategy implemented depends on the economic conditions prevailing at the time. If the economy as a whole, or certain sectors of the economy for that matter are expanding, products and services may have more expansive markets and higher demands than during recessionary times. If employment level is high and income levels in turn are high, people in general will demand more as they will have more money to spend in disposable terms. In relation to the store, the fact that the UK economy has just come out of the credit crunch may help in keeping intact the fear of the last economic recession that was not too long ago, which in turn may also hamper growth of sales for the store. Consumption growth has slowed down after the credit crunch of 2008-2009 and is expected to grow by only 0.6% in 2011 and 1.3% in 2012. By 2015 growth is expected to increase by 2.3% if the government abides by its current economic policies and the spending is continuously financed by extra debt (REFERENCE: Larry Elliott Economics editor, The Guardian, Monday 4 April 2011). However, this may be a reason to worry in the longer run as spending is financed as a result of economic policies through which government is increasing its own debt. If people start thinking about it, they would tend to increase savings fearing another recession and cut back on consumption that may also hamper sales growth of the store. It must not be ignored that this store is a merchandising unit, and this kind of merchandise targets a limited market, i.e., the diehard Beatles fans. Coupled with this factor, is the fact that the products being offered by the store are not necessities but neither are they a luxury, hence, it is fair to say they fall somewhere in between. Even if incomes grow by a substantial rate, the sales of the store will not have a drastic impact on them as these fans will still be consuming or purchasing more or less the same amount as before. Given there’s a decrease in growth, and hence incomes, these fans may cut back a little on purchases but this will not be of any substantial magnitude(Washington,2008). Social factors as the word suggests, take into account societal considerations, including cultural aspects. For example, security, population growth rate, health, literacy rate etc. The socio-cultural environment encompasses demand and tastes which vary with changes, such as those in fashion, disposable incomes, best trends etc. These can pose to be both, threats and opportunities for some businesses, especially those operating on the foundations of innovation and uniqueness. It has been observed very commonly that products emerging as a novelty soon convert into victims of market saturation as their demand increases. Factors of the sort, call for changes in pricing and promotional strategies(Anderson,1967). Taking social factors into account, one primary aspect that organizations should be well aware of is demographic changes as the structure of the population changes based on age, affluence, working population etc. These factors play a huge role in influencing demand for goods and services and in establishing target markets or the need for diversity in the range of products and services that the company is offering. The place where this store gets lucky, is that it offers a range of products that are not present elsewhere in the market. This readily gives the store an edge over others in the market., because of which the novelty and market saturation condition is not applicable in this case. The Beatles throughout history have had a huge impact on the socio cultural conditions worldwide. Emulation of their clothing and especially their hairstyles, which became a mark of rebellion, had a global impact on fashion. The Beatles changed the way people listened to popular music and experienced its role in their lives. From what began as the Beatlemania fad, the group grew to be perceived by their young fans across the industrialized world as the representatives, even the embodiment, of ideals associated with cultural transformation. As icons of the 1960s counterculture, they became a catalyst for bohemianism and activism in various social and political arenas, fuelling such movements as womens liberation, gay liberation and environmentalism. From the 1960s, which was when the band initially emerged, to now, these movements have only become stronger. The nature of the band is such that not only does it have a fan following from the older and previous generations, but also a wide fan base from the younger and more current generations. Hence, any demographic changes even won’t have much of an impact on the stores sales. Technological factors include research and development, automation (use of control systems and information technology to reduce the need for human work in the production of goods and services), technological incentives etc. Technological shifts have influence over costs, quality and innovation(Hervey bay,1970). Even though technology can lead to various fruitful outcomes for a company, the fact that it is expensive to develop and attain should not be ignored(Ortega,2007). The store can improve business by working on its delivery of goods tactics. The store can become more efficient with the help of technology in taking in orders, providing the customers with on time deliveries, updating the customers with newly acquired memorabilia, and can increase its sales by keeping in constant communication with those seeking after them. This is the day and age of the internet. Easy accessibility through the web can pump up business substantially for the store. If the store uses techniques such as blogging and constantly updating its web site, it can keep in constant touch with its customers and providing them with much needed convenience. The emergence of new technology by other stores will not hamper the sales of this particular store because of simple reasons. The reasons being that this store is a harem to the Beatles, it is a shrine dedicated just to the Beatles for the Beatles fans, and hence, does not have much competition in the market. But, if the store is able to improve its current means of functioning, it can sprout up its sales. Environmental factors are essentially constituent of ecological and environmental aspects such as weather, climate, climatic changes etc, which can have an important impact on tourism, farming and other such sectors. Increasingly, research on environmental factors has led firms to restraining from using environmentally harmful substances or indulging in activities that may harm the environment, to more eco friendly means. Lastly, legal factors include various laws such as consumer law, health and safety laws, employment law etc, which can again affect a company’s cost operations and product demand. Environmental, legal and economic factors may work in amalgamation in having an impactful hit on the stores sales. If we talk about environment; there are many issues surrounding the planet, climate change being one of the most vital ones. As a result of these environmental changing conditions in the world, the developed countries especially, on a large scale, are looking for changes to preserve the planet we live in today to accommodate the future generations to come. This has resulted in legal laws and legislations concerning environmental controls. Industries are to reduce carbon emissions and make sure the environment (through water and land) is not being polluted; however these legal concerns relating to environment are less likely to affect this store in UK as it is a merchandiser. There is a possibility of a chain effect however, as these legal legislations may cause producers of hardware (Concerning Beatles products) under big tax or penalty brackets owing to degradation of environment, this will in turn cause cost push inflation in the retail market and the store may be victim to declined sales as a result of another Economic factor followed by legal actions owing to environment concerns for a third party(Barratt,2000). The PESTEL analysis can prove to be very helpful if the industry, the company, the products, and the components are all thoroughly and comprehensively studies. It can lead to improvement in the decision making process and help improve the marketability of a business. 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