Pestle Analysis
What is a competitive market?
A competeitive market has a large number of buyers and sellers, and the products sold are close substitutes
Example of legal factor
A possible change in VAT would push up costs for businesses.
Example of economic factor
A strengthening exchange rate could make exporting more difficult. However, in contrast imports become cheaper.
What is an oligopoly?
An oligopoly is where businesses share 70% of the market between them.
Description of a competitive market
Barriers to entry are low and businesses have little control over the price charged. There is a free flow of information, about the nature of products, availability, prices, methods and cost of production.
Example of legal factor
Businesses in the food industry are under pressure to reduce the amount of sugar and salt.
Example of political factor
Changes in government, for example, a new government may be elected. New laws could be introduced which may positively or negatively affect businesses.
Example of technological factor
Changes in technology shortening product life cycles. This is because new products are quickly developed to replace old ones.
What is the impact of New Entrants in the competitive market
Competion gets stronger when new businesses enter the market and the existing businesses need to consider their position. The growth of online shopping has forced businesses to offer online services or risk collapse. In the first half of 2014, 16 shops a day were closing down. Some of the casualties were building societies, video rental shops, pawnbrokers and fashion retailers.
If you fail to respond the changing competitive market - what can happen?
Failure to respond effectively to the changing competitive environment could negatively affect the performance of a business and at worse may threaten its survival.
Example of economic factor
Falling unemployment may help to increase demand for many businesses.
Example of social factor
In the UK, greater numbers are going to university. This could affect the quality of staff for businesses.
Example of social factor
Increasing migration might increase the size of potential workforce - making recruitment easier.
Example of economic factor
Lower interest rates would make borrowing cheaper and encourage more investment.
Example of political factor
Members leaving the EU - this could disrupt financial markets and causes a great deal of uncertainty
Example of environmental factor
New ways of generating power using renewable sources, providing more opportunities.
Example of social factor
People appear to be more health conscious. This may create opportunities for some businesses e.g., fitness centres.
What do people want to protect?
People are increasingly protective of the environment, the threat to wildlife and global warming. Examples include:
Example of environmental factor
People are more inclined to buy 'green goods'. This provides opportunities to those specialising in these goods.
Example of political factor
Pressure groups, such as ASH (Action on Smoking and Health) may persuade the government to increase taxation on tobacco.
Example of economic factor
Recession of 2008 - income-elastic products would have the most problems.
Example of technological factor
Replacing labour with capital - often welcomed as human resources are said to be the most expensive and difficult to manage. New tech also lowers unit costs.
Example of changing competitive environment
Retailing has become more competitive due to online shopping facilities.
Example of economic factor
Stable prices create more certainty, encouraging businesses to invest in their future.
Example of technological factor
The development of social media has helped to improve communication between business and customer, allowing businesses to keep up with changing consumer needs.
What framework does the government provide?
The government provides the legal framework in which businesses operate. It also directs legislation at businesses to protect consumers and employees so they are not exploited.
Example of political factor
The issue of national security - terrorism - this has become a priority for many countries and will restrict the movement of goods, people and capital.
Example of changing competitive environment
The number of businesses in the mobile telephone industry is falling, and in 2015, Hutchinson Whampoa bought O2 for £10.25Billion. This reduced the number of operators in the UK from four to three.
Example of social factor
The population in many countries is aging. This could affect demand patterns and create new opportunities for some businesses.
Why do businesses welcome technological change?
The rate of technological change seems to gather pace all the time. Businesses usually welcome technological developments because they often provide new product opportunities or help improve efficiency.
Example of changing competitive environment
The supermarket industry has become more competitive since 2010. Aldi and Lidl have taken market share from Morrison's, Tesco and Sainsbury's.
Example of environmental factor
The trend towards recycling is gathering pace in the UK. By using recycled resources, businesses can cut costs.
Characteristics of an uncompetitive market
There are higher barriers to entry and businesses benefit from economies of scale. Prices remain the same for a long time, as businesses are afraid of a price war. Businesses are likely to use non-pricing competition such as advertising and promotion. The car, confectionary and potato crisp markets are all good examples of an oligopoly.
Example of changing competitive environment
There has been a consolidation in the airline industry, in 2005 there were 11 US airlines sharing 96% of the domestic market. BA and Iberian Airlines then merged to form IAG and Air France and KLM merged, as have Swiss Air and Lufthansa.
Example of legal factor
There have been calls to ban advertising of alcohol on television. If this was introduced it may have a negative impact on the beverages industry.
What does Pestle Analysis involve
This involves identifying the Political, Economic, Social, Technological, Legal and Environmental factors that might influence business activity and performance.
What is the impact of New Products in the competitive market?
When a new product appears, businesses may need to adapt their product, lower the price or invest heavily in a marketing campaign. In the banking industry, a number of new entrants have started to offer peer to peer lending and now the Royal Bank of Scotland plans to pilot a new P2P platform of its own.
What is consolidation?
When the number of businesses in the market falls, but some of the existing businesses get bigger. These businesses then pose a threat to others and maybe able to lower their costs and have a larger market share. Other businesses may try to organise their own mergers or develop their products or cut costs in some way.
What is an uncompetitive market
dominated by a single producer
What kind of impact to social changes have?
over time there are likely to be changes in the way society operates. Although social and cultural changes tend to be gradual, they can still have an impact.
What is a monopoly?
where a business can charge higher prices (government monitoring is required)