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Unit 1 Business Environment Sample Solution
Diploma in Business
Unit Number and Title
Unit 1 – Business Environment
Task 3: The behaviour of your chosen organisation in its market environment
AC3.1 Explain how market structures determine the pricing and output decisions of your chosen organisation
Market structure is an important concept in any particular business environment. It is a structure where there several organisations which are manufacturing or providing products or services respectively which are similar in nature. Pricing and output decisions are governed by market structure itself (Elfenbeinet al,2014). There are various types of market structure which exists today, prominent one are as follows:
Oligopoly: In such market structure, number of competing organisations is relatively less, making the competitors in a dominant position. In such market structure entry barrier to the market is relatively high, which ensure that the existing players in the market remain in dominant position.
Duopoly: Duopoly can be defined as a specific type of oligopoly where only two producers exist in one market. In other words, two firms having complete control of market is a situation of Duopoly.
Monopoly:In monopoly type of market structure, there is only one organisation which completely dominates the market. Due to this various decisions related to pricing and output are completely driven by the company which is dominating the market. This kind of market structure is not considered good from consumer’s perspective, since they do get options in terms of price and product, and have to buy whatever the company having the monopoly is selling, thus, monopolistic market impacts the pricing decisions in the market structure, which at times leads to consumer exploitation as well.
Perfect Competition:In practical scenario, this type of market structure cannot exist. Such market structure represents a perfect business environment, where multiple companies are focusing on production of similar goods or services, and entry barrier in the market is low as well.
Monopolistic competition:is a type of imperfect competition such that many producers sell products that are differentiated from one another (e.g. by branding or quality) and hence are not perfect substitutes (Elfenbeinet al,2014).
With regard to Waitrose it can be said that it exists in an oligopolistic market structure. Reason behind calling Waitrose an oligopolistic company is, that in UK retail sector is dominated by five to six major players like Sainsbury’s, ASDA, Tesco etc. and Waitrose is one of those companies which has dominance in the food retail sector, with competitor such as Marks and Spencer’s. In such business environment, decisions related to pricing and output are driven by the concept of demand and supply, along with the fact that how competition in the market exists. It can be said, that overall business strategy of Waitrose does gets effected by what other similar companies are doing(Elfenbeinet al,2014).For example, if Marks & Spencer decides to launch an innovative customer loyalty program to attract new customers, then after some point of time, even Waitrose will come up with a similar strategy so that it does not loses its customer to the rival company.
AC3.2 Discuss how market forces shape the way in which your chosen organisation responds in the business environment in which it operates
Market forces play an important role in defining the overall functioning of the organisation like Waitrose. This can be understood better by application of Porter’s five force model which highlights five major market forces which influences the organisation’s strategy.
One of the major market force is the factor of supply and demand. Demand for a particular product or service is responsible for driving the way company reacts to a business environment. For example, Waitrose, has captured more than 5% of the Britain’s grocery retail market. However in 2008, Waitrose had to trim down its employees due to poor demand, and eventually when demand picked it had to hire new employees and ramp up its procurement process. That is why, supply and demand force always play a major role in an organisation’s strategy. It decides that, how an organisation allocates the resources to handle the demand for a product or service.
It is also important to understand that these market forces impacts the functioning of an organisation through changes in strategies related to marketing, sales, and operations. Five market forces are (Porter, 2008):
Customer power: In this regard, Waitrose does not have much threat from customer’s bargaining power, considering the fact that there not many retail stores which are focused on providing specific services in food retail. However, over a period of time UK has seen mushrooming of various small retailers in this field, but considering the size of Waitrose which captures a major share in the food retail segment, it has become an obvious choice for its customers.
Threat from suppliers: As mentioned above, there are not many companies in food retailing. This gives an advantage to Waitrose in terms of handling and threat from supplier which is relatively less. Waitrose works with more than 250 domestic suppliers, and has over the period of time developed its own supplying capability for some of the major products. This, has ensured that suppliers-buyer eco-system in Waitrose is not dominated by any one particular party and remains evenly balanced. Suppliers also avoid getting into any sort of dispute with a buyer like Waitrose, as at any given point of time it can opt for any other similar supplier if things do not work for it.
Threat from new entrants: In UK’s retail sector this threat is relatively low now. Reason behind this fact is, that over a period of time, UK’s retail sector is being dominated by 5-6 companies. In such case entry of a new organisation is difficult, since the market share in the retail sector is already moving towards saturation. Rising cost of setting up a new business has also ensured that smaller organisations are hesitant of entering the market now. In such situation Waitrose also is further consolidating its position in the market by acquiring several small business stores related to food retailing to ensure that its dominant position in the sector remains as it is.
Threat from substitute products: Waitrose, in this aspect has relatively less threat from any substitute product. Considering the fact that there are hardly any retail store which has complete focus on the food retailing. This has ensured that over a period of time Waitrose has cemented its position as a major food retailer in the market. Thus, even customer prefer Waitrose due its unique market positioning (Hinds, 2009).
AC3.3 Discuss how the external business environment and cultural factors shape the behaviour of your chosen organisation
Business and cultural environment play an important role in modelling the overall behaviour of organisation. Due to unique market positioning of Waitrose as specialized retailer in all types of food items, business as well as cultural environment has impacted Waitrose in a major way to change its behaviour.
This can be understood by the example, that in 2008 when entire Europe was reeling under recession, then retail sector also got a hit. In such case, Waitrose also witnessed a dip in the sale of various gourmet food products, or in other words food products which are not a ‘must have’ on a customer’s list. Such kind of situation impacted the profitability of Waitrose as these products have high margin on them as compared to regular food products. That is why, Waitrose devised a strategy of promotional offer, where it combined such food products with regular items and sold them at a discounted price. Business situations such as inflation also have impacted the business of Waitrose from time to time (Johnson, 2013). Inflation impacts the supplies coming from the suppliers, as it results in the increase of the price of the items, which eventually has to be passed on to the customer. This kind of situation is neither good for a company like Waitrose nor is it beneficial for end customers.
Cultural environment also plays a major role in shaping organization’sbehaviour. This fact is well understood by Waitrose as well, and this is major reason behind company’s strategy behind launching new innovative schemes to attract customers. Over a period of time change in buying behaviour of customer has also impacted the overall organisational strategy. To a large extent it can be said that the way people purchase or perceive shopping in retail stores is a cultural change itself. For example, Waitrose stores are designed in such a way, that placement of important food products is done first, this is to cater to the demand of customer where they look out for products which they consume more and want to buy first. One major cultural change which Waitrose has seen is in customer servicing. Initially, customer service was not a much focused area. However over a period of time, with customer becoming highly aware of their rights etc. any small issue in the product can result into customer dissatisfaction. This has made Waitrose a more customer oriented organisation. Overall PEST analysis of Waitrose is displayed below. PEST analysis summarises the political, economic, social and technological environment in which organisation is working.
Figure 1: PEST Analysis of Waitrose
Task 4: Significance of the global factors that shape UK national business activities
AC4.1 Discuss the significance of international trade to UK business organisations
International trade is an important aspect of a business environment. In a highly globalized world no organisation can avoid international trade. Thus, international trade can be defined as an activity where commercial transaction takes place between two countries on agreed set of terms and conditions (Michie, 2011). For any country international trade is a major boost for its economy. But for organisations such as Waitrose it is a major opportunity to expand globally.
Currently Waitrose is based in United Kingdom. Although in domestic market, Waitrose has clear dominance on the food retail market, however the way, other retailers like Marks and Spencer’s are equally aggressive in their market expansion. However, Waitrose has still a long way to go before it can compete with other international level retailers such as Walmart. International trade will expose Waitrose to new and rapidly expanding markets in developing countries such as Latin America, Asia and China. European market has already stagnated in terms of new customers. That is why it has become important for Waitrose to re-think about its international strategy. This will lay down a clear path for Waitrose to expand its operations globally. Another important significance of international trade is that, it reduces the risk involved in the business. For example, if Waitrose has its operations in China as well, then in case of economy recession in UK, it can still make significant profit from Chinese retail market.
Overall it can be said, that international trade has force the organisations these days to develop a dedicated strategy which is focused on the aspect related to international trade. However it is also important for Waitrose to follow various trade guidelines laid down by organisations such as World Trade Organisation (WTO). These policies acts like a protocol between two international parties who are involved in the international trade
AC4.2 Analyse the impact of global factors on UK business organisations
With rapid globalisation, there have been various global factors which have affected the strategies of companies across the world. Some of the factors which has impacts Waitrose as well are as follows:
Implementation of ERP: Waitrose has implemented Enterprise Resource Planning (ERP) application through its organisation to have a better control of its supply chain. It has also focused on establishing an entirely new state of art IT division in order to cater various in-house IT requirements, such as maintenance of POS devices etc. This has given a better Waitrose management a better control on its business, and it has provided it with more flexibility to deal with larger players such as Tesco, ASDA etc. (Cini&Borragán, 2013).
Economy recession: One major global factor which has impacted Waitrose is economy slowdown across Europe since 2008. Even though economy is still in recovery mode, but it has affected the overall purchasing power of people as well. That is why, people over a period of time have been focusing more on purchase of essential food items only. Despite of several attempts of Waitrose to gain its customer base, since last 2-3 years growth rate of the company has been relatively slow as compared to growth rate before economy recession.
Focus on e-commerce: Due to rapid emergence of e-commerce website, products sold through retail stores have taken a hit. People are exploring and purchasing more and more products from online shopping portals. This has impacted the Brick and mortal model of Waitrose. Even though Waitrose has also launched its e-commerce website, but it is yet to gain that level of popularity as compared to other e-commerce websites.
Global factors have also impacted in further liberalisation and expansion of businesses in UK. For example company like Virgin Airlines, or Vodafone have operations across the world today. This has been possible only due to the fact that globalisation has opened up the international market due to which other markets have also become liberal in nature, allowing other companies to setup their business in the country (Wetherly& Otter, 2014).
AC4.3 Evaluate the impact of European Union (EU) policies on UK business organisations
European Union can be defined as politico-economic union of 28 member states, which are located within Europe. Basic idea behind establishment of EU was to bring uniformity in the social and economic situation existing within the continent.
Overall it can be said, that there are several European policies, which impact the business based in UK in negative as well as positive manner. One of the major policies is:
CTP (Common Trade Policy): This is one major road block, when it comes to the question of international expansion. This particular policy prevents a member state of EU to directly engage in any sort of international trade agreements.
Similarly FTP (free trade policy) to a large has impacted policies of Waitrose. For example, Waitrose is free to indulge in trade with any of the 28 members. This has helped in regularization of tariff to a large extent (Wardet al,2011).
Ultimately EU has been playing a major role, in driving the growth of entire region. However it is important for its members to utilize this opportunity and grow ahead.
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