Cumnor Ltd Analysis of Macro External Business Environment Influencing Demand for Ice Cream
Cumnor Ltd: Analysis of Macro External Business Environment Influencing Demand for Ice Cream
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Introduction
The business environment is a setting created by several factors which influence the organization’s decision making process and affect its performance. Macro environmental analysis forms the first step of a strategic analysis referred to as an external analysis. A well-known tool used to identify external influencing factors is the PEST analysis that involves research of political, economic, social and technological impacts. The paper seeks to carry out analysis of the developing macro environmental factors affecting ice cream products. External environmental analysis is aimed to help to identify opportunities and threats in the ice cream industry. The two main questions reviewed in the analysis are: what will affect the growth of the industry as a whole, and what are the likely impacts of the processes affecting the industry.
For example, an aging population is a demographic trend in many countries. This trend is expected to result in ice cream sales drop. The opportunities and threats identified in the external macro environment analysis might have positive or negative effects on the industry’s welfare. The effects may include interest rates raise. Hence, the company should be aware of potential consequences. For instance, if the fluctuations in interest rates aren’t expected to affect company’s performance, then the interest rate change should not be considered in the macro analysis of environmental factors.
Macro environment factors of Cumnor Ice Cream Ltd.
Ice cream production in UK has continued to face significant demand. The consumption is expected to register 5-% growth in value terms. Consumers are greatly motivated by indulgence as they continue to search for affordable treats to reward themselves during economic hardship times. Observation indicates that the volume size is growing at slow rates (Michael, 1999, 35).
Economic environment
Global economic factors create an impact on all businesses. Per se, the future economic climate will have a significant impact on Cumnor Ltd. The climate will dictate how consumers, suppliers and other organizational stakeholders will behave in society. When the economy is in recession due to the world’s financial crisis, it creates an impact on the potential customers as their budget gets shortened. Due to the economic challenges affecting people in the UK, consumers may tend to keep the money in their pockets and cut down the rewards they offer to themselves in order to satisfy basic needs. One of the significant impacts the Cumnor Ltd may face in condition of economic crisis is drop in visitors number. If in such conditions the Cumnor Ltd finds a way to propose more considerate prices, many people will increase their visits to the organization. The implication will be a rise in an opportunity for ice cream to most consumers in UK. Customers do not want to renounce totally to go out for ice cream treats therefore they will opt to visit the most affordable places (Robert & Bradley, 1987, 57). Per se, Cumnor Ltd has captured many customers due to its considerate prices. As a result, the financial crises of individuals is not going to affect the sale of ice cream for the organization. And if economic condition changes for better, returning customers will continue to visit the shops for ice cream more often and prefer more expensive types. The economic growth is said to have gained momentum in 2004, and the upturn has continued to grow. But recent indicators show that the economy began to backtrack in 2007. The slow global economy causes the environmental derail in the growth of the ice cream business (Johnson & Scholes, 2002).
Social-cultural environment
Social-cultural environment focuses on the social aspects that affect attitudes, interests, and opinions. The above mentioned factors are what shape the people of the place. They also shape the way people behave and what constitutes the consumption. In the UK, the attitudes have been changing towards habits of self-reward and leisure activities. Most of the young generation people see ice cream as the best activity to engage when having a constructive relaxation time (Robert & Bradley, 1987, 59). People have become very conscious about their leisure activities and the amount of input it consumes. As a result, the UK ice cream markets are expanding regardless of the expansively associated. There is a growing trend towards ice cream culture, and if Cumnor Ltd focuses on exploiting the gap in the market, it will be the best in ice cream sales. People tend to shift towards healthy socio-cultural habits. Organizations such as Cumnor should aim to complement and benefit customers in their lifestyle and behavior. If Cumnor is not able to adopt and respond to socio-cultural changes of its customers and societal changes, it might lose market share and demand. UK holds a significant position in the world when it comes to the happiness index (Robert & Bradley, 1987, 61). Therefore, it can be interpreted that people will spend their time in destinations that offer them quality time in terms of quality services and goods. It means that most people will want to visit the best places to hang out with friends and have a relaxed time in a comfortable and healthy environment. As long as the ice cream industry competitors have not processed the whole market by exploiting the market potential, there are great prospects for Cumnor to venture into the business in even greater indulgences than its current status (Thompson & Martin, 2005, 11).
Ice cream competitive forces
The competitive forces are defined by the market structures; a market is a group of buyers and sellers. Ice cream market in the UK faces stiff competition. Consumers are well knowledgeable of the existing sellers and hence, tend to exercise full consumer choice. The dealers are also aware that there are several sellers of similar products. Per se, the price of ice cream and the quantity cannot be considered essential distinctive factors for any single buyer and seller. Rather, price and quantity is a collective factor determined by all sellers as they interact in the market. Consequently, the markets are perfectly competitive. It means that there are so many buyers and sellers that no single buyer or seller has an influence over the market price (Thompson & Martin, 2005, 21). The most beneficial strategy for Cumnor Ltd is proposing such a price that will suit both the organization and buyers. The company is forced to assume perfect competition in order to generate a sustainable place in the market share. The company will have the easiest time operating in perfect competition market because it does not have the mandate do determine the prices. However, the quality of the products sold in the market will influence the purchases made for a particular customer. If most consumers discover a fault in the products or their trust in the product is lowered, the company sales may go down. It does not automatically translate to loss but eventually the firm will fail to withstand the pressure of the market. Consequently, if the company ignores quality factor, it will run to loss and ultimate closure (Thompson & Martin, 2005, 22).
Internal analysis
Internal analysis focuses on analyzing the internal strengths and weakness. Internal analysis of the strengths and weaknesses focuses on the internal factors that give Cumnor Ltd advantages of the targeted market. The strengths are the factors that assist the firm in meeting the customer needs. The weaknesses are also analyzed from a customer’s perspective, and they offer the flaws that the company does not see (Grant, 2002).
Marketing issues
Cumnor Ltd should keep its social mission; even so, the company needs to develop sales and marketing strategies to centralize their marketing activities. Its main customer task force is made up of a young population. Targeting this group of consumers means that proper advertising should focus on promoting products. The company should weigh the possibilities and advantages of redesigning its advertising strategies. Therefore, it should adjust the design of its packaging to meet the matching status of its current customer’s tastes. Such a move creates an added advantage for the company because the market is perfectly competitive (Grant, 2002). Offering coupons and discounts will ensure that more customers are attracted to the business. The company has discovered ways to expand its markets. One of the ways is through discovering and promoting diverse usage of its products. For example, the company engages in promoting ice cream eating on different occasions and seasons that have significant value to the people. The company has put up strategies to counter the seasonal demand for ice cream and make it a cultural practice for demand of ice cream. A careful advertising is among the methods used in order to achieve the above objective. The company has engaged in giving up weaker boundaries to smaller firms and concentrating in the stronger regions (Grant, 2002).
Some marketing studies advise organizations to try product bundling approaches, brand extensions and dual branding to refresh their strategies and attract new clients (Levin, Devis & Levin, 1996).
Human resource
Cumnor Ltd has maintained its social mission and kept manual labor as well as integrating new labor improved strategies. The company is benefiting greatly by moving its human resource to less labor intensive production. The management of the company has sought to keep the benefits and maintain the levels attained for wage demands and supply. There are enough considerations of strategies that will facilitate the communication of management team and the lower classes of employees as the company faces diversification and growth. There are key strategies put in place in order to disseminate information in all the tiers of communication. The employees are made aware of any changes in the organization and business strategy through swift and efficient communication methods (Hill & Jones, 1998).
Financial issues
Sensitivity analysis indicates that a company’s most sensitive part is its profits or losses. The profits or losses are a sensitive part of cost of sales and administration costs. The company reduced the cost of sales by 1% which led to a reduction in loss possibilities by 29%. The administration cost if cut by 2% will lead to reduction on loss possibilities by 18%. So far, the company has managed to keep its administration costs within the limits of its budgets. There are no bad investments made so far. An acquisition of new equipment will facilitate efficiency but lower the profits of the current year. The new equipment will increase efficiencies within the financial operations of the company. The asset write-off leads to a decrease in profits by 12%.
Operational issues
The shift in customer demands insists that the company should stress the importance of operational activities. The company counter attacks its downfall in the operational issue sector by investing in research and development. It has created a full-time based research and development department that dedicates its resources to the development of unconventional, cutting-edge flavors (Kelly, 2009). As such, the company will be upfront in the market area. The ice cream flavor development has proved to be very successful. Company is able to maintain a low cost on its operational issues. The company follows very strict procedures for selection and purchases. The company gets most of its supplies from established firms hence saves in costs and creates efficiencies (Cole & Kelly, 2011).
Conclusion and proposal
There are no companies operating in the road of success and profitability without challenges. Major investments typically lead to minor losses. Cumnor Ltd is facing a real market for its products; therefore, the investors should have confidence in investing further.
The company should engage in following the proposed strategic options, and it will benefit in several ways. One of the ways is international expansion. An increased sales volume will enable the company to generate more profits and gain from the economies of scale. The cost structure of the organization will go down increasing the profitability margins. Employees will benefit from the satisfaction through better remuneration such that the company will ride down up the learning curve and profit from employee experiences.
Proposed implementations are to incorporate long-term investments as the company should capitalize on global expansions since the UK markets are reaching maturity. Early entry to the international market will ensure that the business gains in future growth.
References
Baumol, J., Panzar, C. and Willig, R. 2000. Contestable Markets and the Theory of Industry Structure. New York: Harcourt Brace Jovanovich.
Cole, G. A. and Kelly, P., 2011. Theory and Practice and Management. Cengage EMEA.
Hill, J. and Jones, G., 1998. Strategic Management – An integrated Approach. Houghton
Mifflin, Boston, MA
Grant, R., 2002. Daimler Chrysler and the World Automobile Industry. Oxford: Blackwell.
Johnson, G. and Scholes, H., 2002. Exploring Corporate Strategy: Text and Cases,
Prentice Hall, U.K.
Kelly, P., 2009. International Business and Management. Cengage Learning EMEA.
Michael, S., 1999. Contestable Markets and the Theory of Industry Structure: A Review Article. Journal of Economic Literature 21.
Robert, D. and Bradley G., 1987. The PIMS Principles: Linking Strategy to Performance. New York: Free Press, 64–5.
Thompson, L. and Martin, F., 2005. Strategic Management. Cengage Learning EMEA.
Levin, A.M., Davis, J.C. and Levin, I., 1996. Theoretical and Empirical Linkages Between Consumer’s Responses to Different Branding Strategies. Advances in Consumer Research, Vol. 23, pp. 296-300.
