An External Market Analysis for a Multi-channel Retailing Company Selling to the Plus Size Market - Research Paper Example

PESTEL ANALYSIS: This section explores the various external factors that may influence the entrance and operation of a new business in a given marketenvironment. PESTEL stands for: Political Factors: Government policy can affect businesses depending upon the extent of their intervention in the economy, like employment laws; education available to the workforce; concerns on national health; and quality of the economy’s infrastructure like road and rail systems (important when deciding on suppliers) (see Kotler, 2003; Drummond et al, 2001). Application to Retailer Selling to the Plus Size Market The factors that are likely to affect the retailer in this context are mainly government implementation of taxes and employment laws. Although these factors can be complied with, a more ethical issue arises when considering the government’s concerns on national health. Since the retailer is targeting the plus size market, which includes people who are obese within the statistics, there may be a concern that providing them plus size clothing may encourage a continuation of bad eating behaviours within Britain. But the basic need for clothing will normally prevail. Economic Factors: These include issues like interest rates, foreign exchange, changes in taxation, inflation etc. Higher interest rates may mean it would cost more to borrow towards a business; A stronger currency may make exporting difficult due to higher foreign prices; Inflation may result in workforce demands for increase in wages; But a good national income growth may boost demand for a firm’s products. For example, the current credit crunch has resulted in the closure of many firms due to poor national income depleting demand for their products (Kotler, 2003; Kotler & Armstrong, 2003; Drummond et al, 2001). Application to Retailer Selling to the Plus Size Market: Economic factors are a vital concern for the retailer in question especially in the current environment. Due to the credit crunch, interest rates have gone up making it difficult and expensive for potential businesses to borrow. Also, the overall national income has fallen resulting in inflation, which in consequence has raised the need to improve wages for the workforce. These are important factors to consider when employing staff and pricing the products. Social Factors: Social trends can impact a firm’s operations in terms of consumer behaviour. It is hard, for example, for a firm to choose a target market in a multicultural society like Britain, as different cultural groups have different buying behaviours, but it is more advantageous to categorise buyers in terms of other social aspects like age group, social class etc (Kotler, 2003; Proctor, 2000). Application to Retailer Selling to the Plus Size Market: This is probably the most influential factor for the retailer in question, as it helps determine the main target market for the product range. Studies have shown that in the UK children between 2 and 10 years old tend to be overweight or obese due to bad eating habits, but this is more prominent in lower class families who may not be able to afford a healthier lifestyle. This number is expected to go up in the next ten years or so (http://uk.reuters.com/article/idUKTRE5BE0KT20091215). Research also shows that women over 45 years of age tend to be overweight or obese, and in spite of pressure from the celebrity culture, television programmes focusing on making bigger women look well have improved the prospects for clothing in the plus size by reducing the women’s levels of insecurity. (https://www.keynote.co.uk/market-intelligence/view/product/2239/plus-size-fashion). Although these figures present a grim picture in relation to the health issues of the nation, people have to be clothed, and the prospects are there for plus size clothing. Technological Factors: Technology is evolutionary and as it evolves so does business. New technology gives rise to new products and news ways of doing business. So depending on the nature of a business, product wise, it is beneficial for a company to keep abreast of changing technology. One of the most prominent aspects of technological advancement is the concept of online shopping, which has been embraced by most consumers and has more and more companies conducting their businesses online (Wilson & Gilligan, 2005; Kotler, 2003). Application to Retailer Selling to the Plus Size Market: As a multi-channel business, technology will probably play a significant role in ‘channelling’ the above business. As explained above, one of the most economical ways of doing business is through the internet, as more and more people are shopping online for their products (http://www.thewisemarketer.com/features/read.asp?id=53). This may prove true for the plus size market in particular as insecurity levels may still exist amongst overweight and obese customers in going to shops. This may also reduce maintenance costs associated with holding retail units. Environmental Factors: This refers to changes in weather and climate conditions. Growing concerns on global warming has led to many companies following environmentally friendly procedures in conducting their businesses. Also, changes in weather can effect industries like tourism, farming, insurance etc. Many retailers are now under pressure to use environmentally friendly methods of disposing off industrial and other wastes (Kotler, 2003). Application to Retailer Selling to the Plus Size Market: In the UK, the main environmental challenges the retailer may face are weather related and may include concerns like delivery of goods especially in bad weather. Other concerns are the need to be environmentally friendly in the retailer’s operations. Many retailers have taken up safe disposal of their industrial and other wastes in compliance with environmental laws. Since these laws are straight forward, they may not be a major issue to consider. Legal Factors: These are an extension of the political (governmental) factors, in that they address issues related to laws passed by the government in relation to many aspects of business. These may include: Consumer laws, which protect buyers from unfair business practices (example displaying wrong prices), and misleading description of products; Competition laws, which are in place to protect smaller firms from being monopolised and bullied by larger firms, and ensuring customers are not exploited by the bigger firms; Employment laws, which address issues like redundancy, minimum wages, working hours, dismissals etc basically aimed at protecting employees from exploitation by firms; Health and Safety legislation, which is concerned with making sure the workplace is as safe as is reasonably possible, and that adequate training is given to employees on health and safety issues (Kotler & Armstrong, 2003; Proctor, 2000). Application to Retailer Selling to the Plus Size Market: In this context, the above retailer is required to be conscientious and ethical in presenting the right information to the customers. The retailer is also responsible for safe experience for customers and employees alike by following health and safety regulations. Conclusion: The retailer in question has many basic issues to consider before entering the market as outlined above. The company will also have to consider threats from existing retailers. In this context, although many big branded retailers provide a considerable amount of plus size clothing, the company in question is specific in its product’s target market and has considerable competitive advantage over other generic retailers. SUPPLY CHAIN MANAGEMENT: This section explores the different options available for the retailer in question in terms of finding and selecting potential suppliers for the business; designing a value chain model to add value to the routine operations of the company; and finalising what kind of supply chain management (SCM) will be adopted for the above operations. Supply chain management can be defined as “the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole” (Christopher, 2005). The process involves a complex co-ordination between the company and the supplier in order to provide best value to the end user, the customer, where the retailer is also a customer to the supplier in return (Mentzer, 2001). Selecting suppliers: This process involves finding the right supplier for the products required for the business, and usually assumes a lasting relationship between the retailer and the supplier (Mentzer, 2001; Blanchard, 2007). In the case of the retailer in question, main suppliers may include suppliers for material for clothing; suppliers for the IT infrastructure of the company; and suppliers for all the paper and administration work required for daily operations. Supply is dependent on the number of producers of a product. The more producers there are, the better the choice in terms of determining cost effectiveness and demand for the product, and also for forecasting future demand (Blanchard, 2007; Hugos, 2006; Mentzer, 2001). Traditionally, suppliers were selected according to the most cost-effective vendors available. This trend has now changed in relation to quality of the product, expected consumption by consumers and the resulting demand (Hugos, 2006). For the retailer selling plus size clothing, the target market is relatively less diversified and choosing a supplier for clothing should be relatively easier than is for other larger retailers. As far as suppliers for the IT infrastructure are concerned, most retailers use a standardised IT system for their daily operations of scanning products, serving customers on checkouts, inventory or stock control and other administrative duties. The retailer in question may find it reasonably convenient to employ the same kind of generic IT system for their operations. Consequently, this makes it easy for the retailer to choose a supplier that provides the necessary paperwork required in combination with the IT structure. This may require an investigation into other retailers of similar size and their suppliers. One key feature of selecting an IT supplier would be to intertwine the business’ online operations with the same supplier, in order to maintain the company’s website. Creation of Value Chain: The focus of value-oriented marketing is to manage the activities of the retailer so that higher value can be realised. This means that in a market driven environment, the retailer aims to increase value of the product to the customers hence increasing the value of the company (Bruhn & Georgi, 2006). Porter (1985; 1987; 1990; 1992; 1995) designed a generic value chain model that is mostly common to most companies. The model shows activities of different functions that companies use in order to provide value to the end users. These activities are: inbound logistics, referring to the receiving and warehousing of raw materials on their way for manufacturing; operations, which is the process of turning raw materials into manufactured goods; outbound logistics, referring to the warehousing and distribution of finished goods; marketing and sales, referring to the identification of customer needs and generating sales; and service, which is the function of supporting customers after the products have been sold to them (http://www.netmba.com/strategy/value-chain/). A Proposed Value Chain Model for the Retailer in Plus Size Clothing A separate chain has been included above for the supply of administrative material, which plays an equally important role in creating value to the end users. Type of Supply Chain Management: Research suggests that the best supply chain management practice is that which generates best value and strategically provides the competitive advantage that companies seek (Jespersen & Skjott-Larsen, 2005). The aforementioned authors also give us different types of SCM depending upon circumstances that the business may have to face on a daily basis. The function of SCM is potentially seen as a relation that may include the following features: relationships that the business in question wishes to lead and coordinate so they have more control of the supplies in terms of demand, wastage, and control of stock; relationships that are not critical for the business in question, but should still be monitored to ensure activities are completed satisfactorily by other businesses within the supply chain network; relationships that the business in question does not consider to be critical or worth sacrificing management or monitoring resources on; relationships with other supply chains (Lambert, 1998 cited by Jespersen & Skjott-Larsen, 2005). This emphasises the complexity of the function of supply chain management and the interdependence between the suppliers and the receiving companies. For the retailer of plus size clothing, it is important to have a considerable amount of control on the supply of goods, especially in the initial stages of entering the market. This would help the retailer in monitoring the consumption pattern of their products and make future forecast with the help of which they can either increase or decrease the amount of goods to be supplied. The advantage with this method is that it would keep monitoring simple, whilst helping the company build relationships with the supplier. On the disadvantageous side, exercising more control on the supplier may create unwanted friction within the value chain. PORTER’S FIVE FORCES MODEL Porter designed his five forces model to illustrate where power lies in a given business situation (1985; 1992; 1995). It was designed to help a business understand its strength in its current competitive position and also the strength of a position that the business wants to move into. Most businesses use this model as a tool to study the competitive environment of a market they plan to enter. Below is a pictorial representation of Porter’s model: (Source: http://www.mindtools.com/pages/article/newTMC_08.htm) With the help of Porter’s model, a business can take fair advantage of a situation of strength or improve in an area of weakness. In application of the model to the retailer of plus sized clothes, we shall study each component of Porter’s model to better understand the retailer’s position. Supplier Power: Porter’s model suggests that the more suppliers there are available for a business’ products, the less power suppliers may have on the business because of the availability of a range of options. In the case of the plus size clothing retailer, raw materials for the production of the clothes may have greater suppliers, and less for finished goods. So it may be wiser on the long-run for the retailer to have their own manufacturing function. Buyer Power: This refers to the extent to which buyers can affect pricing of a business’ products. Porter suggests that if a business’ customer base is primarily limited, the customer has more power in dictating terms. In the case of the plus size clothing retailer, even though their customer base may be more limited when compared to larger retailers, it is also important to realise that there are not many retailers for this specific market, putting the retailer in question in an advantageous position. Competitive Rivalry: This is an important component as the number of competitors, especially those who provide similar services or products as a business in question pose the threat of customers having more options to buy their products. Again the retailer in question is relatively unique in their market as their target is the plus sized market in particular. This may give the business a competitive edge. Threat of Substitution: This is where the products or services offered by a business can be easily duplicated by other businesses or sometimes even by customers. Again the retailer in question remains at an advantage competitively as not much duplication may be in place for plus sized clothing. Threat of New Entry: This is possibly the only significant threat to the retailer selling to the plus sizes market. This is where new businesses may enter the market offering similar services or products as the business in question. This is ultimately dependent on entry costs into the market, economies of scale, time taken to enter and how easily technology is available. For the retailer in question, due to the relatively stronger position they may already hold in the market, a new entry may not pose a major threat for some time, within which the retailer may be able to come up with strategies to tackle the threat. BUSINESS RISK ANALYSIS: The definitions of uncertainty and risk have taken many variations over the years (Brindley, 2004), with risk management defined as “the process whereby decisions are made to accept a known or assessed risk and /or the implementation of actions to reduce the occurrence of the risk” (Brindley, 2004, p22). When considering risk analysis, businesses need to start from risk management in the supply chain network, leading to the risks involved with the end users, the customers. “Supply chain risk management is to collaboratively apply risk management process tools with partners in a supply chain to deal with risks and uncertainties caused by, or impacting on, logistics related resources or activities” (Norman & Lindroth, 2002 cited in Brindley, 2004, p15). According to Brindley (2004), the main dimension to supply chain risk management is the ‘logistics’ unit of analysis, which addresses the level of complexity of the logistics unit of the supply chain. The complexity increases with further diversification of the receiving companies in terms of product range, additional sub-companies etc. For the retailer in plus size clothing, this risk is minimal as their products are limited to a segmented target market. The other risks involved for the retailer in question are risks of entry into the market, where a good analysis of the market environment may help the company devise strategy to overcome these risks. Some of these have been discussed in earlier sections; however, another model that the business can use is SWOT analysis, which stands for Strengths, Weaknesses, Opportunities and Threats of themselves and of their potential competitors to assess their position in the market and reduce the risk of loss and lack of customer loyalty. STAKEHOLDER MANAGEMENT “Stakeholder management is the process of managing the expectation of anyone that has an interest in a project or will be affected by its deliverable or outputs” (http://www.projectsmart.co.uk/stakeholder-management.html). Research suggests that companies that are well managed and have strong stakeholder relationships tend to better than those who are focused solely on the bottom line (Svendsen, 1998). This is probably because having stakeholder assistance may provide the additional pressure on the business to perform better in a competitive environment (Fritz, 1996). The central factor is the knowledge that the stakeholders expect returns for their investments in the company’s stocks, and for this to happen the company needs to perform well. Stakeholders have been responsible for massive restructuring of large complex organisations, which shows they have immense power in the execution of policy on a company (Fritz, 1996, Joyce &Woods, 2002). In application to the retailer in question, stakeholder involvement may be relatively low to start with but once the business has generated some income, stakeholder pressure may increase in terms of forecasting and investing in further developments. It is also difficult for a relatively smaller business like the retailer of plus size clothing to generate high profits consistently. The role of the stakeholders should then become that of support for the company in order for it reach its strategic objectives. In conclusion, the market for plus size clothing is increasing in the UK based on the evidence presented earlier in this discussion, and consequently, the demand for plus size clothes will also increase. As demand increases, more businesses will venture into the market for a share of the income this demand may produce. So even if initially the retailer may have a competitive edge in the market, it will not be long before more businesses crop up and increase competition and need for newer markets and products. References Blanchard, D. (2007). Supply Chain Management: Best Practices. John Wiley and Sons, Inc: New Jersey Brindley, C. (2004). Supply Chain Risk. Ashgate: Hampshire Bruhn, M., and Georgi, D. (2006). Services Marketing: Managing the Services Value Chain. Pearson: Harlow Christopher, M. (2005). Logistics and Supply Chain Management, 3rd ed. Pittman: London Drummond, G., Ensor, J., and Ashford, R. (2001). Strategic Marketing. Butterworth-Heinemann: Oxford Fritz, R. (1996). Corporate Tides: The Inescapable Laws of Organisational Structure. Berrett-Koehler: San Francisco Hugos, M. (2006). Essentials of Supply Chain Management. John Wiley & Sons, Inc: New Jersey Jespersen, B.D., Skjott-Larsen, T. (2005). Supply Chain Management. Copenhagen Business School Press: Denmark Joyce, P., and Woods, A. 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