When social trends transform, it can have a significant affect on the demand for a company's products and the availability and motivation of individuals to consider employment. One social trend to consider at the moment is that people are living longer. As the population ages, the costs for firms committed to pension payments, increase because their employees are living longer. Firms like Asda have started to recruit mature employees to tap into this increasing labour group. The aging population has also had an affect on demand for nursing homes, which has increased whereas the demand for children's toys is falling. (OUP, 2008). Attitudes to career are changing and many women are entering university which will affect the birth rate, and thus sales. Other social factors include current fashion and role models, housing trends, living standards, and health.
Mintel reports that "Birthrate and population trends are undoubtedly the major driver of the market volume for retail sales of babywear". Mintel concludes that the logic is that if no babies are born, then demand for baby clothes would be zero. According to the Pakistan Times, "Immigration has raised the birth rate so fast [in the UK] that some units have closed…" which is good news for the baby clothes market as all babies need wardrobes of the same kind whether they come from prosperous or poor households. Furthermore, in a statement from The Royal Berkshire Hospital, the trust said “We are undertaking a strategic review to look at what sort of maternity services should be provided over the next 10 years, based on future population growth and birth rates”. The fact that the trust indicate that the birth rates are set to soar, shows that the baby clothes market should continue to do well. Back in 2001 however, the market looked different as birth rates were at a record low of 1.63 children per woman in 2001. Firms began launching new marketing campaigns to gain competitive advantage. They panicked due to the prediction of birth rates falling in 2002 but it has only been in the last five years that the birth rate has risen to the highest ever since 1980. So, overall, the Fertility Rate is temporarily on the increase as predicted by the Office for National Statistics. (ONS, 2008) However, the years 2011 - 2021 is predicted to mark a decline in Fertility Rates as stated by Mintel. (Mintel, 2008).
Technological advances created new markets with the introduction of MP3 players, HD television, satellite television, online banking and mobile phones. The way business is conducted has improved as a result of enhanced technology, allowing faster transactions world wide 24 hours a day. Technology when implemented effectively has also reduced labour costs, increased sales, and lead to modernization. Progress in this way has benefitted the organization as well as its consumers. (OUP, 2008).
Improvements in manufacture technology have created a decline in the use of disposable nappies and an incline in the use for the newer re-usable style of nappies. The newer model of nappy, fit closer, and has been constructed with a waterproof lining which makes it washable. In selected hospitals in the United Kingdom, a pilot scheme is in operation whereby a laundering service is being offered in some localities to wash re-usable nappies. The re-usable nappy market has increased to a %40 market share in America, in comparison to the United Kingdom, where the market share is only at %10, which means there is a possibility for the UK market share of re-usable nappies to increase. One independent specialist declared that "We've seen a big growth in the sales of washable nappies rather than disposable. Re-usable nappies are some of our best-selling products now." which suggests scope for the re-usable nappy market share to increase over time. (Mintel, 2008).
Global warming, climate change, and weather are factors to take into account when considering the environmental issues in PESTEL analysis. As global warming is becoming more of a significant concern in the modern world, firms are starting to re-think in terms of the environment. As concern grows for the protection of our atmosphere, the travel and transport industry have been affected by changes in demand with the shift over to hybrid cars for example and the increase in air travel tax. Consumers are demanding environmentally friendly items which open doors to new business prospects. (Mintel, 2008).
During the summer, the main objective will be to keep the child warm; whereas during the summer, the emphasis will shift to protecting the child from harmful Ultra Violet rays. Therefore, global warming is a contributing factor to how the market changes and develops. In America and Australia where it is very hot at certain times of the year, companies have started to offer new rages of Ultra Violet clothing to make certain that children are not in danger of catching the suns harmful rays. Mintel therefore, has reason to believe that those same distributors will be likely to set up United Kingdom. (Mintel, 2008).
Companies are bound by certain legal factors which determine the legal environment in which they conduct business. In recent years, certain discrimination laws have been introduced and renewed, which have meant that the company's behaviour has had to adapt. With the increase in the minimum wage, labour costs have increased for companies operating tin the United Kingdom. So it is in this way, that the legal system of the United Kingdom has affected and forced companies to adapt to change. Legal factors also affect demand. If a service or product is made unlawful, then demand may significantly fall below what it was when it was legal. (Mintel, 2008).
LoNGPESTEL analysis which covers all of the above, political, economic, social, technological, environmental and legal issues are considered in the same way, but on a global scale. Rather than just asking how these factors affect the company of choice in the home country, which in this case is the United Kingdom, the same issues can be considered on a global level when off shoring in India for example. Again, when considering off shoring in Saudi Arabia, it is essential to understand the social background in order to be a success. Making an uninformed decision to offshore in Saudi Arabia without understanding its political, legal and social issues, could prove to be disastrous for the company image and cause the company to lose money which could have been potential profits. (Daniels et al, 2007)
In conclusion, there is agreement between some retailers that the economic conditions have been good the last few years. As mentioned previously, retailers put this down to their own skilful initiative which has interpreted the market right by meeting the customer's demands and exceeding them. However, the influx of migrants to the United Kingdom has also contributed to the demand of baby clothes and the evidence suggests that this will continue to rise unless the political climate changes. Immigrant mothers are contributing to the current birth rate by having lots of children, whilst British women are actually having fewer children every year. For the market as a whole, a recession does not seem likely, even with the credit crunch hitting the economic climate in the United Kingdom at present. Although, purchasing of luxury items may dwindle during the period of economic slump.
However, on a negative note, retailers realise that competition is on the increase as supermarkets are proving to be tough competitors in the baby clothes industry. Nevertheless, mail order companies do not see that there are many negative issues affecting the baby clothes market at the moment. So it appears that in general, the market is actually on the increase and there is scope given the current PESTEL analysis that it is possible for a company to increase its market share in the United Kingdom with the re-useable nappy. (Mintel, 2008).
b) Issues Currently Affecting the Business
The hypothetical firm of choice is a manufacturer of babies' clothes and nappies which are re-useable, and disposable. The luxury product is a designer label re-useable nappy. The disposable nappies are considerably cheaper than the re-useable variety and offer many benefits and features desirable to the customer. Premium, but not designer re-useable nappies cost from £19.99 upwards in today's market and are much more environmentally friendly, and are made possible due to new technological breakthroughs and the demand from consumers. (Snugglebumnappies, 2007).
Using the appendix attached, the PESTEL model can be used to analyse the many different factors in an organizations macro environment. Sometimes, particular issues may fit in several categories. For example, the invention of new re-useable nappies was made possible through technological advances, but has environmental consequences. If an issue can appear in many sub sections, managers decide where to list it. (OUP, 2008).
Moreover, this paper will attempt to explain and justify the three most important issues currently facing the hypothetical firm. The key issues affecting the company at present are a) United Kingdom fertility rates, b) the rising National Minimum Wage and c) global warming. These issues have been chosen for several reasons which will be made apparent throughout. It is noteworthy that the greater the chance of a change taking place, and the greater the outcome of any change, the more considerable this aspect will be to the firm's planning. (OUP, 2008).
The first factor to consider is the United Kingdoms fertility rate (birth rate) and the impact this will have upon the company. As stated in the appendix, Mintel reports that "Birth rate and population trends are undoubtedly the major driver of the market volume for retail sales of baby wear"
Below is a chart to illustrate fertility rates in the United Kingdom from the year 1960 until the year 2005.
Total Fertility Rate, UK Source: (ONS, 2008).
The chart points out that in the United Kingdom, Total Fertility Rate (TFR) reaches 1.9 children per woman in 2007. Fertility in the UK had not reached the numbers it had in 2007 since 1980, 27 years ago. (ONS, 2008). Mintel reports that the ONS state that during the years 2011 to 2021, the average number of births will be approximately 694,000 per year, compared with 715,000 at present. The past five years have seen rising fertility in the UK, but in the future, the TFR is set to decline if current trends continue. (Mintel, 2008). The good news is that the number of births is only estimated to fall 21,000 per year from 2011 until 2021 on average. An approximate calculation shows that from 2008 until 2021 there are is an estimated total loss of 273,000 births for the next 13 years, meaning that the business can prepare to possibly counter that small decline through a marketing strategy or through moving into the market of the Continent where designer items are in high demand for example. (Mintel, 2008). The business can suffer slightly due to the fall in birth rates, but if the marketing strategy is a success, it may be possible to gain competitive advantage against other companies in the UK and dominate the market.
However, unfortunately, unless fertility rates and family sizes increase, "…there must be difficult times ahead for the market as a whole…" even though there is optimism and fertility rates are high at present. The segment that shall continue to decline according to forecasts by Mintel, is the main driver of the market share; which are babies and toddlers from the ages of 0-4 years. (Mintel, 2008).
On the other hand, there is a chance for the premium and designer side of the market to flourish as making a contrast with other markets imply. According to manufacturers of baby clothes in Europe, parents in the UK do not tend to buy designer labels for babies around 0-4 years of age. However that trend is changing and it is likely that with economic success, that there will be a greater change in that direction. If designer baby wear continues to boom, then it is likely that other competitors to the company will suffer as a result because consumers will exchange their traditional premium brand for a designer one. When interviewed by Mintel in regard to his thoughts on current market trends, a baby clothes specialist declared that "It is hard to say about market trends, but I am optimistic that there are opportunities for further growth within the market" insinuating that, as a baby clothes specialist selling designer labels, it was difficult to interpret the market fully. However, he was confident that growth was possible for the sale of luxury items (Mintel, 2008).
Research conducted by Mintel suggests that tough competition to win customers "…will create price pressure at the lower end of the market…" helping consumers to make as many savings on low end quality goods as possible. (Mintel, 2008). This may contribute to an increase in the level of disposable income a consumer has, allowing them to consider the purchase of a luxury item, and thus ultimately, induce a designer label boom for re-useable baby nappies which will be great news for the business.
In April 1999, the National Minimum Wage was introduced by the newly elected Labour government which had, from a manager's point of view, an unfortunate and immediate impact on all businesses in the UK. All persons 22 years and over were legally entitled to a minimum of £3.60 per hour and £3.00 per hour for all those between 18 and 21 years of age. This meant that all businesses are now required by law to pay employees the set National Minimum Wage. Those over 22 years of age can now expect £5.73 per hour, an increase which is nearly double the initial rate in April 1999. There was also an increase for those aged 18 to 21 on March 5 2008, which rose to £4.77 per hour. (BCI, 2008) . In light of this, the business has undergone many challenges to the organization, in terms of management, finance and administration.
The business faces financial challenge every year in terms of remunerating employees with a fair wage. The Birmingham Chamber of Commerce and Industry (BCI) has lobbied continually to set increases of the NMW to match rises in inflation and in April 2006, the Low Pay Commission (LPC) declared that all NMW rises in future, shall be "…in line with wage inflation…" and in March 2008, the increase was 21 pence per hour. The problem at the moment is that the rises are above the rate of inflation and the growth of average earnings. The BCI argues that "…the annual NMW rise is economically unsustainable…" and that the effect on businesses is significant. Also, the NMW increases are not just affecting small to medium enterprises, they are affecting large global companies as well, hence the reason for many managers considering the benefits of off shoring where labour costs can be kept at a minimum. (BCI, 2008).
A continual problem that resurfaces every year is the cost of putting the NMW into operation. Administratively and financially, putting the NMW into practice is costly. To aid businesses ensure they manage this problem correctly and to keep the unwanted effects from having an influence on the workforce, it is essential that the government do more to make sure that the business has the necessary training and support for its managers. (BCI, 2008).
The Government has been impacting the way society uses energy and deals with waste by legislating and educating the public, including business organizations. According to Business Link, legislation has meant that the consequences of failing to adhere to the law regarding the environment "…can have severe consequences.". If an organization does not comply, they face being closed down in order to prevent the business from acting unlawfully. Thus, the ignoring this issue would be imprudent for a successful and profitable business operation. (Business Link, 2008).
The 'UK Sustainable Development Strategy - Securing the Future', published in March 2005, explained that all business organizations needed to consider their approach to corporate responsibility. For example, business's need to re-think how they are to extract raw materials and inform the consumer about recycling the product they buy. (Business Link, 2008).
As a result of this, global warming is a subject that now many consumers are becoming educated about. The company approach to this issue of global warming and the environment is vital in developing a respectable reputation with consumers. It is noteworthy that other businesses, who have failed to consider this aspect, have suffered as a result and lost valued customers. If a business continues to ignore the environmental issues in terms of waste disposal, and global warming, then there is a risk of making the business unsustainable. (Business Link, 2008).
However, it is possible to increase the growth of the business by considering the environmental issues and planning for the distant future. If steps are taken to manage how the company recycles waste and extracts raw materials, and educate the company staff about the effects of global warming, then performance shall improve and profitability shall increase because steps are being made towards taking the sustainable method. (Business Link, 2008).
In conclusion, taking into account the research concerning the declining Fertility Rate of the UK, and noting the figures Mintel estimate for the next 13 years, it would seem that although there is a steady decline in birth rates among women of the UK, that there is still scope for a luxury product to flourish, whilst tough competition for keeping and gaining customers increases for the lower end of the market. Thus, it would be advisable as a manager, to develop a marketing strategy that would facilitate the launch of a luxury item, as the risk appears low and optimism is high within the market as a whole. (Mintel, 2008).
The NMW has obviously had a significant impact upon the amount of staff one is able to employ, and has contributed to profit loss, more notably, since March 2008 with the increase of the NMW by 21 pence an hour, above the rate of inflation. However, the NMW is a legal requirement in the UK and all businesses, namely, competitors, are in the same predicament. In coming up with a solution, off shoring could be an option, depending if, in cutting labour costs, quality standards, practicality and efficiency are sacrificed. Moreover, in withdrawing from a UK site because of the NMW, consumers may become dissatisfied, and negative press may result due to the possible ending of jobs in the local community. The question to ask could be 'Does the risk and benefits of cutting jobs in the UK to off shore, outweigh current and projected annual loss operating in the UK?' Also, the government need to contribute more in terms of training managers to manage the effects of the NMW effectively. (BCI, 2008).
The environmental impact of the company product is very important to the business, because if a product costs less to manufacture, while at the same time still meeting the expectations and needs of the consumer, the business will be in an advantageous competitive position to out perform its rivals in the market. (Business Link, 2008)
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End Notes
-., (2007), External Environment. [Online]. Last accessed on 9 November 2008 at URL: http://www.businessdictionary.com
-., (2000), Baby Retailing March 2000 Market Factors. [Online]. Mintel Oxygen, March 2000, article from Mintel Oxygen, last accessed on 9 November 2008 at URL: http://www.academic.mintel.com
Saleem, Rubab, 2008. UK paying for ‘migrant baby boom’ [Online] last accessed on 12 November 2008 at URL: http://www.pak-times.com
(2000), Baby Retailing March 2000 Market Factors. [Online]. Mintel Oxygen, March 2000, article from Mintel Oxygen, last accessed on 9 November 2008 at URL: http://www.academic.mintel.com
-., (2000), Baby Retailing March 2000 Market Factors. [Online]. Mintel Oxygen, March 2000, article from Mintel Oxygen, last accessed on 9 November 2008 at URL: http://www.academic.mintel.com
-., (2008), Fertility, Rise in UK fertility continues. [Online]. National Statistics, last accessed on 13 November 2008 at URL: http://www.statistics.gov.uk
-., (2000), Baby Retailing March 2000 The Future. [Online]. Mintel Oxygen, March 2000, article from Mintel Oxygen, last accessed on 9 November 2008 at URL: http://www.academic.mintel.com
-., (2000), Baby Retailing March 2000 Market Factors. [Online]. Mintel Oxygen, March 2000, article from Mintel Oxygen, last accessed on 9 November 2008 at URL: http://www.academic.mintel.com
-,.(2008), Employment legislation. [Online]. Last accessed on 14 November 2008 at URL: http://www.birmingham-chamber.com
Ibid.
-,.(2008), Importance of environmental issues to your business. [Online]. Last accessed on 15 November 2008 at URL: http//www.businesslink.gov.uk