Consumer Behavior - Trends in External Environment - Assignment Example

? Principles and practice Apart from the internal structure, marketers need to consider the external environmental influences on a business and the changing trends. Consumer behavior in every industry is influenced by both internal and external factors. Internal factors may include things like motivation, learning, and perception. While these internal factors have a considerable impact on customers, external or macro environmental factors can change the business direction and shapes it strategies to a greater extend. Thus trends in external environment can have a major on consumer choice and preferences and therefore, it is important for marketers to be aware of such trends. Underlying trends are relatively slow moving changes in the marketplace that may occur for a number of reasons. A successful marketers needs to keep track of these changes and respond accordingly. The nature of the trends is likely to differ; sometimes they are consumer led and sometimes business led. However, businesses must realize that in order to gain a competitive edge and better satisfy the customers, these trends are needed to be taken into account. Macro factors are those that have an indirect impact on the business, also known as PESTEL. It includes factors that create opportunities and threats to business and is categorized as the far environment. These include variables such as political, environmental, socio-cultural, technological, economic and legal. With respect to marketers of cosmetics products, these factors play a crucial role and can have a significant impact on the industry structure. Political factors consist of laws, government agencies and pressure groups that influence and limit various organization action plans. For instance, legislation affecting cosmetics business has increased worldwide. Also, various laws exist that protects companies, consumers and interest of the society at large. And most importantly there is an increased emphasis from government, on socially responsible behavior. Concerning political factors from cosmetic industry’s point of view, unstable political conditions of the relevant regions can be troublesome for the business with respect to imports and exports. Moreover, an increase or decrease in tax rates can also impact the profitability of the business favorably or unfavorably. Environmental factors mainly include the surroundings, weather and climate change. With major climate change occurring due to global warming and with greater environmental awareness, this external is becoming a significant issue to consider. It is particularly important to cosmetic firms as the industry involves many input material that may bring damage to the environment. Also products are susceptible to climate changes, and thus need thorough analysis. Concerning environmental factors, firm can create value and better satisfy customers by adopting environmental friendly approach. This would help firm avoid legal costs and increase its goodwill. Moreover, use of natural ingredients, preferred by the consumers also adds value. Change in social trends can impact the demand for a firm’s products. Aging population, income groups, lifestyle and social class highly affect cosmetic demand. Thus, social factors affect the customer needs and size of potential market. With changing fashion trends, increased awareness and better life styles, demand for cosmetics is likely to increase. For instance, an increased awareness amongst men may lead to an altogether new cosmetic line. Similarly, aging population is likely to increase demand for anti-aging cosmetics. New technology creates new products and process. It tends to impact both the business process and the final offering. With the advent of internet for instance, the distribution channels have become virtual with cost efficiencies for cosmetic industry. Other innovations include bar coding and computer aided design that enables companies to keep track of its customer preference and offer innovative designs, respectively. Technology, thus can reduce costs, improve quality and lead to innovation. These developments can benefit both the customers and the companies providing cosmetics. With respect to technological factors, new product innovations can be likely. This in turn would enable firms to attract more customers and charge premium. However, rate of technological change also have a significant impact and can conversely affect the profitability of the industry. Economic factors generally include interest rates, taxation changes, economic growth, inflation and exchange rate. Economic factors can change the entire demand structure of the product as it ultimately depends on the buying power of the potential consumers how the product sells out and remains in business. Thus, also in cosmetic industry, economic factors affect the purchasing power of the buyers and the firm’s cost of capital. Falling interest rates can help cosmetics firms favorably as they can opt for franchising the business at lower costs. However, it would also add to the import cost of special ingredients involved in making cosmetics. Increase in income levels would favorably affect the demand for cosmetics as people would be more willing to spend and also go for high premium cosmetics. Similarly higher national income growth may boost demand for a firm’s products. However, inflation may provoke higher wage demands from employees and raise costs. Legal factors are related to the legal environment in which a firm operates. Different categories of law include consumer laws, (designed to protect customers against unfair practices such as misleading descriptions of the products), competition laws, employment laws and health and safety legislations. For instance, the requirement for firm’s to recycle products has made a considerable impact on cosmetic industry. With respect to legal factors, animal testing is also a major issue. Thus to avoid legal problems, cosmetics firms must abide by the laws. Moreover, there is a ban on use of certain ingredients and due to increased customer awareness, firms must take extra care of not to indulge into illegal practices. PESTEL analysis can be used for business and strategic planning, marketing planning, organizational change, business and product development and research. All this in turn, enables business to satisfy the end users. It enables businesses to acquire a perception to better deliver and satisfy consumers. Organizations that undertake this analysis regularly and systematically often detect trends before other competing brands and thus gain a competitive edge. PESTEL is a tool that has a simple framework and thus easy to use, time saving and cost effective. It facilitates cosmetic companies an understanding of the wider business environment and take initiatives and cut back on product line accordingly. For instance, with an increased awareness of the harm associated with chemicals, more and more consumers looks for herbal products. Also PESTEL enable organizations to anticipate future business threats and take actions accordingly to minimize or avoid its impact. Moreover, it enables businesses to spot business opportunities and exploit them fully, which is particularly important in cosmetics business owing to the ever changing technology and innovative products for personal care and beauty. Macro environment analysis is a useful tool for cosmetic industry to understand the big picture in which it is operating. It enables companies to understand the risk associated with market growth or decline, and the direction, position and potential of an individual company or organization. It enables companies to plan ahead and cater to its consumers with respect to changing trends in the external environment and how it affects the individual business. Because cosmetic industry is vulnerable to changing trends, PESTEL analysis helps company to devise a strategy and map out a plan both in short-term and long-term. If an industry as sensitive as cosmetic industry tends to ignore its macro environment, the consequences can be damaging. It is so because when a firm does not takes into account its political, environmental, legal, social, and economic environment, it is not fully equipped to respond to consumer demands and compete in the industry. Omitting a PESTEL analysis will result in overlooking the changing trends and needs of the consumers and providing products that are out of date and not needed. However, it is not important to just list down PESTEL factors because this does not in it helps marketers much. What they need to do is to consider those factors that are likely to change the most and those that will have the greatest impact on the industry as a whole. Also it must be narrowed down to a particular part of the business, as opposed to the entire firm as a whole. It must be taken into account, the level to which PESTEL is applied because there are varying segments to an overall business. A general, standard environmental scan would result in conflicting and often flop strategies as what might work for one segment, won’t be applicable to the rest. This will enable marketers to better understand the external environment with respect to each department or product as PESTEL tends to vary with different offerings. Therefore, while PESTEL analysis is extremely important for cosmetics industry, it must be conducted appropriately taking into account varying needs with respect to the product line. Also, an analysis is not the answer to better satisfied customers. What companies need are strategies, action plans and short-term and long-term objectives based on the findings from their respective macro environment. References Kazmi, A. (2008), "Strategic Management and Business Policy" (3rd Edition), Tata McGraw-Hill, p. 93 Read More