1 Chapter 14 Strategic Analysis – The The External Environment Answer to End of Chapter Exercises
Q 14.1 PESTEL analysis for company entering the Bicycle industry Political P1 – P1 – National cycling strategy – strategy – expansion expansion of national cycle network P2 - Congestion charging for cars in London and potentially potentially other cities. cities. P3 – P3 – Removal Removal of trade barriers e.g. anti-dumping duty. Economic E1 – E1 – Low Low inflation and interest rates and increasing wages has led to increased usage of cars E2 – E2 – Oversupply Oversupply of bicycles on the world market and severe competition E3 – E3 – Prices Prices of supplies are being affected by shortages of raw materials. Social S1 – S1 – Increasing Increasing proportion using bicycles – bicycles – 10% 10% in last 4 years compared to 2% in 1980. S2 - Ageing population which is becoming beco ming increasingly health conscious and a nd taking up cycling. Also wanting greater comfort S3 – S3 – Young Young people – people – desire desire for fun. S4 – S4 – Concern Concern for safety Technologicial T1 - New bicycles being developed e.g. folding bicycle T2 - Development Development of electric bicycles awaiting further development of battery battery technology. Ecological Eco 1 – 1 – Less Less use of scarce resources and pollution Legal L1 Road safety bill Five forces analysis Competitor rivalry A large number of similar sized companies. Industry sales at mature stage Tend to be low switching costs for the buyer
Potential entrants Low barriers to entry although in the low cost high volume market a number of companies have invested in automation to reduce costs. Suppliers bargaining power The power of suppliers has increased in rece nt years with a scarcity scarcit y of raw materials and high demand from bicycle manufacturers. However the market is not dominated by a few companies and it it is difficult to differentiate differentiat e supplies.
2 Buyers bargaining power Increasingly buying power is being concentrated in the hands of a few multiples e.g. Hafords, supermarkets etc. Low switching costs for the buyer means that ret ail outlets are not constrained to buying bicycles from a limited number of suppliers. Consumers have limited brand loyalty in the low cost market segments. Threat of substitute products No real substitute for a number of products e.g. roller blades tends to be a phase. Scooters and low cc motorbikes are a substitute for electric bicycles. Five forces analysis indicates t hat for the high volume low price segment there is intense competitive rivalry. The manufacturing companies have weak bargaining power with the buyers. Less information has been provided about the niche market segments e.g. folding bicycles and electric bicycles. Market analysis Limited information is available but a number of market segments can be identified analysed in different ways Characteristics of people Age analysis: (Comfort bicycles for older age range). (BMX for youth market).
Lifestage 3rd stage and retired stage is becoming more important although no/pre family and family life stage are the main purchasers of bicycles. Social class - C1 and C2 are the highest purchasers of bicycles Purchase use situation – consumer market consumers use the bicycle for: - travel to work - leisure – off road - on road Hard wearing for off road usage Comfort bicycles, particularly for older users Purchase use for niche markets – folding bicycles used for travelling to work. Can also segment purchasers in retail sector. The manufacturers sell the majority of high volume low cost bicycles to the supermarkets and specialist multiples such as Halfords. Specialist bicycles to independent specialist bicycle shops. Specialist bicycles - hybrid, electrical, folding can be bought from specialist independent retail outlets and can also often be bought direct from the factory.
User needs and preferences for product characteristics
3 A large proportion of customers are price conscious, particularly for t he mountain bicycle market (probably also C1 and C2 categories. Quality becoming more important in the hybrid bicycle market. Product features important – folding bicycles. A small proportion of wealthier customers have a brand preference e.g. Pashleys. Older cyclists value comfort. Some consumers are likely to value the use of batter y power, in particular to assist bicycling up hills. Q 14.2 Siegmund Ltd PESTEL analysis Political P1 – Removal of trade barriers allowing many new competitors into the market Economic E1 – The economy has been growing at a substantial rate and with increased affluence consumers are able to afford new types of products ( e.g. ice cream makers). E2 – Consumer demand expected to fall over the next two years as inflation is increasing and interest rates are expected to rise. rd E3 – Increasing 3 world prosperity. Social S1 – Customers (particularly over 40’s) st ill show brand loyalty. S2 - Customers increasingly expect higher quality/ value for money. S3 – Growing home demand for modern and more complex equipment. Technologicial T1 – better process technologies used by competitors? Siegmund employs batch production and has long lead times. Ecological Eco 1 - Consumer and government concern about wastage may lead to reduced demand for products that involve a high usage of electricity Legal L1 - May be risk of future legislation to reduce environmental impact of products e.g. electricity usage.
Five forces analysis Competitor rivalry A number of traditionally based Ruritanian competitors, but now a large number of overseas competitors who have achieved scale economies. Low switching costs for the buyer
Potential entrants New overseas competitors can enter because of low barriers to entry now that trade barriers have been removed.
4 Unlikely to be new entrants competing on a broad range of products because of start up costs, though there maybe new competitors in niche markets for specialist products. Suppliers bargaining power There are a large number of suppliers of high quality components, so Siegmund is likely to have high power in negotiating with these suppliers. Buyers bargaining power Increasingly buying power is being concentrated in the hands of overseas wholesales and super and hype markets. The latter are following aggressive pricing policies. A number of customers are buying products over the internet and these customers may have lower bargaining power. Threat of substitute products No real substitute at this stage Five forces analysis indicates t hat in the current market segments occupied by Siegmund, there is a highly competitive market with a number of competitors able to achieve greater economies of scale t han Siegmund. The power of buyers is very strong. Market analysis
-Characteristics of people Age -Older more conservative consumers who have some customer loyalty to Siegmund. Sex – mainly female though increasingly men may have a greater interest . The size of this latter segment needs to be identified. -Purchase/ use situation – consumer market Increasing prosperity means that more appliances are being purchased. New uses are being identified as consumers become wealthier e.g. ice cream makers. Purchases are likely to increase as labour saving devices are perceived to be important. Brand loyalty of older consumers -User needs and preferences for product characteristics Price appears to be important in the mass market Product features is important for some market segments e.g. socio group AB. Likely to become more important in future years. Threats and opportunities Threats T1 – Removal of trade barriers allowing many new competitors into the market T2 – Consumer demand expected to fall over the next two years as inflation is increasing and interest rates are expected to rise. T3 – better process technologies used by competitors. T4 – As well as traditional Ruritanian competitors, now a large number of overseas competitors who have achieved scale economies.
5 T5 -Low switching costs for the buyer (both the consumer and the wholesalers and retailers) T6 - Increasingly buying power is being concentrated in the hands of overseas wholesales and super and hype markets. Opportunity O1 – The economy has been growing at a substantial rate and with increased affluence consumers are able to afford new t ypes of products (e.g. ice cream makers). rd O2 – Increasing 3 world prosperity. O3 – Customers (particularly customers over 40) still have brand loyalty O4 – Growing home demand for modern, high quality and more complex equipment. Q 14.3 i) Sunshine Sites Students might consider factors that are within the case scenario, but also other factors that they could identify from their own research e.g. market r esearch using Mintel reports. PESTEL Opportunity O1 – Increasing number of holidays taken by families O2 – See threat 2! O3 – A number of holiday centres have been running events.*
Threats T1 - Cost of other holidays – other hotels offering off-peak breaks. T 2 – Unemployment is rising and interest rates are expected to rise. Note that this might also be considered an opportunity! Families are likely to still wish to take a holiday, but may need to trade down to a cheaper holiday centre. T3 New facilties offered by other resorts T4 Rising expectations of families. T5 ‘Sunshine Sites’ is based in the Green belt and t his may limit the opportunity for expansion/new buildings. T6 Cheap alternative holidays e.g. flights overseas* Competitive analysis Competitor rivalry A number of campsites available throughout the U.K.; considerable competition during off-peak season; campsites throughout Europe ; campsites by the sea. Low switching costs for the buyer
Potential entrants Space constraints limit the number of new campsites opening. Suppliers bargaining power Suppliers of raw goods for the shop and ingredients for the re staurant do not have high bargaining power. Buyers bargaining power
6 Customers are families. Individual families do not have high bargaining power to reduce prices, but can go to alternative sites, particularly in low season. Threat of substitute products Many holiday resorts offering additional facilities for fa milies; new adventure holidays for children e.g. trekking, canoeing.; holidays overseas.
Market analysis Students could be invited to undertake some research into the market. For example, review the latest Mintel reports, if these are available through the library system. Issues might consider: Characteristics of people -Camping and caravanning holidays remain largely the domain of families, but possibly the marketing focuses too heavily on the family holiday market. -Poorer families. -Attempts might be made to market early and late summer facilities to families with pre-school children and adults in the third age (children left home). -Also the youth market who think that ‘camping is cool’, but it needs some creativity to capture their imagination.
Purchase use situation – consumer market and industrial/organisation market ‘Sunshine Sites’ is currently meeting a need for a low cost family holiday. For the majority of current customers, this is t he main holiday of the year for either one or two weeks. The site does not seem to be fully meeting the purchase use situation needs of this group as business is declining. It also does not seem to be meeting the needs of rd - the 3 agers in low season (wishing to see the countryside of Dorset?). - short breaks for ABC1 groups. - youth market (pop concert or exciting activities).
User needs and preferences for product characteristics Competing on price, but not meeting the minimum attributes required in terms o f desired product features for the potential market segments. No product differentiation. Q 14.4 Supermarkets appear to have t he most power. A limited number of very powerful purchasers.
