Environmental Scanning - Essay Example

?Introduction Organisations operate in an environment that is characterised by external factors over which the company in some cases has very little control and when investigating these wider factors it is referred to as marketing audit or environmental scanning (Lancaster & Reynolds 1999). On the other hand, the internal environment has a bearing on the way an organisation operates. Against this background, this environmental analysis seeks to explore some of the external as well as the internal factors that affect the operations of Tesco using PESTEL analysis, Porter’s Five Forces model analysis as well as Porter’s value chain analysis. It starts by outlining a brief historical background of the organisation in question for the sake of easier understanding then followed by an analysis of the above mentioned tools for scanning the environment in which the organisation operates. Environmental scanning plays a pivotal role in helping the marketing managers of an organisation to be better positioned to know the situation obtaining on the ground for them to be able to gain a competitive advantage especially in view of the competition that exists. Background According to Datamonnitor (2004) “Tesco PLCTesco is the largest food retailer in UK, operating around 2,318 stores worldwide. It operates around operates around 1,878 stores throughout the UK, and also operates stores in the rest of Europe and Asia. Tesco.com is a wholly-owned subsidiary offering a complete online service, including tescodirect.com and tesco.net. The company also offers a range of both online and offline personal finance services. Tesco is headquartered in Hertfordshire, UK.” Against this background, this essay seeks to outline the organisation’s PESTEL analysis, Porter’s five forces model as well as the value chain. Kotler (1999) posits to the effect that PESTEL analysis is a powerful tool in determining as well as understanding the market forces that affect the growth of business. In other words, it determines the direction for operations in any given business. PESTEL analysis for Tesco PESTEL stands for factors which may affect the operations of business such as political, economic, social, technological, environmental as well as legal factors (Lancaster & Reynolds 1999). This is a very useful tool in analysing the environment in which an organisation operates. It can be noted that there are various factors that affect the operations of any given organisation and these have to be taken into consideration by the senior management so as to achieve a competitive advantage by the organisation. Any given organisation is guided by certain factors that so as to ensure that it does not violate the needs and interests of the consumers as well as the other stakeholders. Political In UK and Europe at large, there are policies that govern the operations of all retail stores. There are laws that govern monopolies as well as competition and these are some of the main political factors that affect the operations of Tesco. It can be noted that Tesco’s success is owed to the observation of these policies where protection of the consumer interests is take as a virtue. Consumer law in UK is effective and under the EU law, every big organisation like Tesco is expected to protect the needs and interests of the customers. Continuous scanning of the political environment greatly helps Tesco to gain a competitive advantage over other rival competitors. On the other hand, it can be noted that the current political environment prevailing in the EU is not exploitative which is seen as the reason why Tesco is able to keep pace with the demands of the market. The government in the UK determines the value of the currency as well as the exchange rates and it can be noted that the success of Tesco is greatly owed to compliance with these rules and regulations promulgated by the government. The Competition Commission for instance suggests that a supermarket should not account for more than 25% of the national market and these are some of the political factors that affect the operations of Tesco (Datamonitor 2004). Economic Tesco.com is regarded as the world’s biggest online supermarket and it is on record that it generates sales of over ?577 million a year. Economically, Tesco harnesses on the use of new information and communication technology whereby all the transactions can be done online. It is also believed that there are more than one million households that use the company’s online services worldwide and this is seen as a strong platform for the organisation to continue developing its stream of revenue http://www.essaycoursework.com/modelanswer/business/help/pestle/tescos.php). Tesco also uses the technique of lowering prices to meet the demands of the consumers especially during turbulent economic crisis like the recent global economic recession. Though it was not badly affected by the crisis, the organisation managed to sail through the difficult period during the period of the economic crisis. There is also clos3e competition in the UK which has resulted in Tesco embarking on price cuts so as to attract more customers to its stores. Sociological The operations of Tesco in UK and Europe at large are guided by various sociological aspects. It can be noted that UK in particular is a multicultural country with a lot of different foreign nationals residing in it. Tesco is known to be selling products to everyone who can access the shop regardless of origin. As a result of immigration from different countries, the customers in UK have different tastes and Tesco is seen playing a pivotal role in satisfying the needs of all the people. It offers products that appeal to all the segments of the market. There has been an increase in immigration from Eastern Europe as well as an increase in the number of young professionals who demand new products that meet their ever changing tastes. For instance, there has been a sharp increase in the demand for meals that can be prepared quickly for those who do not have a lot of time to cook. These are some of the sociological factors that affect the operations of Tesco. Technological factors Technological developments in new information and communication technology have immensely contributed to the positive growth of the organisation. Online shopping for instance has had a great impact on the operations of the organisation. With the use of the internet, it is now possible for the customers conduct their shopping while at home and this reduces hassles on behalf of the shoppers since they do not need to visit the shop every time they need to purchase particular products. Through the use of their specially designed website, Tesco are able to reach as many customers as possible regardless of geographical location. It is more like a global store whereby people from all corners of the world can make purchases online which is a great advantage for the organisation. Environmental The UK regulations on environment are primarily concerned with a reduction in the emission of carbon gasses that contribute to global warming as well as the destruction of the ozone layer. It can be noted that Tesco is one of the leading retailers that are instrumental in supporting this noble cause and has set a sustainable technology fund to the tune of ?100 million towards the reduction of carbon gasses. The organisation also encourages the customers to make use of low carbon products. This social responsibility aspect of Tesco in relation to the environment has greatly enhanced its good reputation with the customers as well as the other stakeholders. Legal According to Datamonitor (2004), “under new government proposals, non-legal companies are to be given the right to sell legal services.” In the event that retailers such as Tesco are granted the opportunity to offer such services, then it will require the intervention of the solicitors to give knowledge about brand awareness as well as consumer rights. Legally, Tesco must refer legal issues pertaining to the consumers to the Law society registered practitioners. Under the current regulations in the UK, it is only the legal firms that can offer specialist advice with regards to law related issues that may affect the customers. Disputes related to customer issues are expected to be handled by legal firms which is a basic requirement that guides the operations of the above mentioned organisation. Five forces model The five forces model posits that there are mainly five competitive forces that characterise the market in many cases and this model is perhaps one of the mostly used strategies in business (Lancaster and Reynolds 1999). There is always need to gather information if the new entrants can be a threat as well as the existing competitors. Threats of other substitutes such as new brands wholly depend on quality. It can be noted that this model is a very effective tool for competitive analysis with reference to the performance of the other organisations in the market. Entry of competitors It has been noted that the Competition Commission in UK actually promotes competition retailing whereby no one big organisation will enjoy the monopoly of dominating the market. Whist it may be difficult for the small actors to penetrate the market, it is possible in the UK for other players to open shop without any restriction. It has been noted that under the current regulations in UK, no player in the retail market is allowed to own more than 25 percent of the whole national market which is meant to promote the interests of the other small actors who may wish to penetrate the market. Already, there are other established players such as Sainsburry, Asda as well as Morrison but this does not limit the opportunity for the other actors to enter into the market. Threat of substitute There is always the danger of substitutes overtaking the other products in the retail market in UK given that there are many actors offering a variety of products. It can be noted that all the supermarkets have seen the sales of organic and premium ranges slowing and Sainsbury is capitalizing on this situation where its lower priced ‘own brands’ are fairing very well compared to other supermarkets. For instance, their advertising campaign featuring Oliver Jamie offering family meals for less than five pounds made the brand name become more popular with the customers. Bargaining powers of buyers During periods characterised by financial crisis as a result of the global economic recession, it can be noted that the consumer spending will slightly decline and price reduction will be the best strategy. Most customers have since changed their buying habits as a result of the credit crunch and it can be noted that lower priced, own brands gain more popularity than any other foodstuffs. For instance, Datamonitor (2004) says that Tesco has launched a Fairtrade grocery range of 15 products with the aim of lowering prices so as to appeal to the bargaining powers of the buyers. Bargaining powers of suppliers There are large as well as small suppliers especially in the grocery sector in the UK and Tesco harnesses on the supply chain of these. The choice is very wide and most of the suppliers use the strategy of bargaining as a way of gaining competitive advantage given that the number of actors is large in the market. Rivalry among existing players It can be noted that there is competition among the players in the market. According to research entitled Sainsbury’s Marketing communication planning 2008-2009, Sainsbury is currently the most trusted ‘own brand’ among supermarkets. It can be noted that almost half of the shoppers have trust in its products and statistics obtained from this research show that 47% of its shoppers have trust in its own products compared to 27% for Tesco, 17% for ASDA and 15% for Morrison’s. However, research has shown that Sainsbury has lost the number one position to rival Tesco which confirms that there is rivalry among the existing players especially in the retail market. Porter’s value chain analysis In order to stay abreast with the changing tastes as well as the changing values systems, of the consumers, the performance of the competition and important changes in the external business environment, the marketing oriented organisations require information (Kotler 1999). Value chain is primarily concerned with establishing what the people actually want and why they want it. Thus, the essence of marketing in this case will be to create bundles of values or satisfaction in the form of products and services which the customers will purchase. In the value creation process, an organisation tries to at least meet but preferably exceed customer expectations for their products as well as services. According to research conducted by Datamonitor (2004), “Tesco has launched has launched a Fairtrade grocery range of 15 products and this move highlights the growing consumer demand for higher ethical standards from retailers and producers.” This comes against the backdrop of the consumers’ increasing need to derive not only functional benefits but also emotional benefits that will make them feel good for consuming such products. According to the same research mentioned above, the dominant grocery retailer in the UK, Tesco has also pursued growth in overseas markets through value creation of products to different consumers. Bibliography Cant M.C. (2000), Marketing Management, 4th Edition Juta and Co Ltd, SA. Kotler P. (1999), Kotler on Marketing: How to create, win and dominate Markets, Free Press, London. Lancaster G. & Reynolds P. (1999), Introduction to Marketing: A step by step Guide to all the tools of Marketing, Kogan Page Kotler, P. (1998). Marketing Management: Analysis, Planning, Implementation and control. Prentice Hall, New Jersey. Strydom J. (2004), Marketing, 3rd Edition, Juta & Co Ltd, SA McCarthy J.E & Perreault W. D. (1996), Basic Marketing: A Global Managerial Approach, 12th Edition, Irwin McGraw-Hill, USA. PESTEL analysis for Tesco (ND) Retrieved on 15 January 2011 http://www.essaycoursework.com/modelanswer/business/help/pestle/tescos.php PESTEL analysis for Tesco (ND). Retrieved on 15 January 2011 http://free-encyclopedia-online.com/business/tesco/pestle-analysis.htm Porter’s five forces model (ND). Retrieved on 15 January 2011 from: http://www.12manage.com/methods_porter_five_forces.html Sainsbury’s Marketing communication plan 2008-2009. Retrieved on 15 January 2011, from: http://www.oppapers.com/essays/Sainsburys-Marketing-Communications-Plan-2008-209/178779 Sainsbury eyes Marketing Crown, retrieved on 15 January 2010 from: http://www.marketingweek.co.uk/cgi-bin/item.cgi?id=64094&u=pg_dtl_art_news&m=pg_hdr_art TESCO PLC Company Overview(ND) Retrieved on 15 January 2011 www.datamonitor.com Read More