CONOMIC FACTORS
Inflation- Inflation affects Tesco in much the same way as changes in tax would. So if the changes in interest rates went down so may the prices. The lower the rate of inflation, the better it is for businesses, as it means that people can spend more and the prices of the products will be affordable. If the rate of inflation was high, people will be spending less, as their income will be less. This will also lead to the increase of the prices of goods.
The inflation will affect employment as if the inflation is high, people will be spending less as their income is low, which means the Tesco will not be making enough money therefore resulting in the increase of products' prices. If Tesco is not making a great deal of profit, then it cannot afford to pay its employees, and therefore there will be a low rate of employment. Low employment will mean that people will not be able to afford to buy a lot of goods, and so Tesco may become extinct.
Unemployment- may affect sales of Tesco because if the unemployment rate was to rise this would mean that people would not be earning as much money and they might have to cut back on luxuries such as chocolate and other things that are not needs.
Energy Prices- Energy prices rise as do interest rates and taxes, so if electricity costs were to be rise this would mean that it would cost Tesco more to run their machinery and this would lead to price increases. As a result again this could mean that Tesco lose out on customers as a result of over pricing.
Interest Rates: Interest rates can affect the Tesco because if the interest rates were high then Tesco would not want to borrow as much money for expansion. Also if consumers had loans they would again have less disposable income to buy luxury items. If the minimum wage was brought down, this would mean more money for Tesco as they won’t have to pay their workers as much money but would also result in low sales from the consumers as their wages could go down and they might not be able to spend money their products. Also if the unemployment rate was high or the disposable income rate was low the potential customers may be forced to buy different products that are cheaper and that they need rather than desire.
The diagram below shows the effect of a rise in aggregate demand on real GDP (Gross Domestic Products). Expansionary fiscal policy and monetary policies may have undesirable side effects. One consequence may be a rise in the price level as the economy approaches the full employment level. The higher level of spending may also increase any existing deficit on the current account of the balance of payments so Tesco will be able to afford high wages and even expand their business in most countries.
Exchange Rate A change in exchange rate affects aggregate demand of Tesco. If a government wants to raise aggregate demand to reduce deflationary gap, it may try to reduce the exchange rate. This reduction would increase the price competitiveness of Tesco’s products and therefore increase exports and reduce imports of Tesco. If the fall in the exchange rate increases demand for Tesco’s products, it’s likely that employment and output will rise in the short run. However, by increasing demand for Tesco’s products and raising import prices it may lead to inflationary pressures.
CUSTOMER'S CONFIDENCE
All businesses are affected by economical factors nationally and internationally. Within the UK the type of the economy make out how a buyer may act within society. Whether an economy is in a boom, recession or recovery will also affect the customer's confidence
Economies around the world also have an impact on UK businesses; cheaper labour abroad affects the competitiveness of UK products nationally and globally. A big company such Tesco has to be aware of economic conditions to ensure they use strategies and tactics that protect their business
ECONOMIC INFLUENCE AND CONSUMER SPENDING
Many empirical market research studies have been done which confirm the key relationships in consumer spending;
- Tesco’s sales rise when income rises
- Tesco’s sales rise when population rise
- Tesco’s sales fall when unemployment rises
- Tesco’s sales fall when savings rise
- Tesco’s sales fall when RPI (Retail Price Index) rises
ELASTICITY
Elasticity plays an important part in the forecasting process, for example
- Tesco sales of durable goods, such as Camera, tend to be very responsive to changes in income (They are income elastic). During a recession people don’t replace their old cameras, they keep their old camera until it falls apart. When the economy improves, sales start to pick up fairly quickly.
- Tesco’s sales of non durables goods, for example, food and clothing tend to be less responsive to changes in income. (They are income inelastic). This is because they have no substitute.
DISPOSABLE INCOME
Disposable income (PDI) is the amount of money people have available for spending and saving of the deductions have been made for tax and national insurance and government benefits have been added.. It’s effectively net income. This affects Tesco because if taxes were to increase consumers will have less money to spend and demand for Tesco’s product will decrease
TAXATION
Direct taxation through Pay-As-You-Earn income tax will affect PDI so that a rise in tax rate will reduce PDI and vice versa. Likewise indirect taxation such as VAT will affect the price of the product.
CONCLUSION
As society changes, as behaviours change organisations must be able to offer products and services that aim to complement and benefit people’s lifestyle and behaviour. All these Factors have their advantages and disadvantages.
Advantages
- Straightforward, easy to grasp broad categories covering major environmental factors
- Can prioritise specifics for own industry sector
Disadvantages
- Analysis of trend lines assumes future will be like the past reliance on data rather than attitudes as predictors of the future
- Companies tend to stay in comfort zone so can end up fire-fighting in current climate, needs extending to take in physical environment (i.e. green issues) and cultural elements