Prepare a Macro Environment analysis report using PESTEL

Macro Environment analysis using PESTEL

PESTEL stands for Political, Economical, Social, Technological, Environmental and Legal

Political- Political factors includes factors like VAT, corporation tax, interest rates, trade restriction, changing policies, bureaucracy etc. 

• Current corporation tax in UK is set at 20% to increase economic activity, but this will not be the situation for long time. If the tax gets increased the price of items gets affected.
• Since the tax free allowance have been increased, which in turn increases customers purchasing capacity Next should take advantage of the situation by effective marketing.
• Other factor is the interest rates. If there is increase in interest rate, Next would have to pay more money as they have outstanding loans.
• Since Next has operations outside UK, whenever there is fluctuation in exchange rate would impact the financial while importing raw materials or products. 
• Political stability is crucial for any business to be operated smoothly. 

Economical- Economical factors includes economic system, financial market performance, inflation, interest, exchange rate, labour market condition.

• Economic growth has huge impact on the company performance. Currently UK is facing financial challenges which directly impacts the people living in the country which are the customers. 
• Since UK have been predicted for a financial recession due to continuous negative growth, Next is also expecting low growth percentage. 
• According to Office for National Statistics (2022), UK unemployment rate stands at 3.7% which is a positive number for Next business because more number of people are employed and can be a potential customer. 
• Another factor is rise in inflation, which means Next has to pay higher price and indirectly the customers are effected with inflation as food price rises, which limits the spending nature. 

(Limburn, 2016)

Social and Cultural- 

• Social and cultural factors like fashion, trend, style, taste, age all plays a  crucial factor in clothing business. 
• There has been reports that population aged 65+ is expected to rise by 10-12 % which influences Next to changes its strategy and even use the home delivery and online shopping to make shopping easy. 
• Ethnicity- Since UK have different ethnic and minority groups from Asia, Africa, Next should be able to meet their requirement which can increase the business. 
• The business may also be affected by a person's lifestyle and behavioural patterns. Understanding consumer behaviour is essential for figuring out what customers need to buy.
• Next’s business is also affected by the spending of people. 

Technological- 

• Online shopping have increased the sale and profit margin of Next.
• Internet, smartphones and social media network was used for the marketing purpose especially for 16-34 aged people which widened Next customer range.
• There is also risk of fall in high street sale with promotion of online sale.

(Limburn, 2016)

Environmental- 

• Corporate responsibility of the company includes carbon reduction and waste recycling, so supplier selection and the logistics must be carefully planned by the company (CORPORATE RESPONSIBILITY REPORT, 2022). 
• Next is required to follow and conduct business according to the environment regulation of respective countries. 
• Extreme weather and climate condition can effect the supply and cost of operations. 

(Henry, 2018)

Legal-

• In order to provide a safe working environment for its employees, Next must adhere to health and safety laws as stipulated by labour laws.
• Consumer protection law must be followed such as pricing and quality standards of the products.
• The purpose of intellectual property law is to safeguard business ideas and patents as well as product designs.

Micro Environment analysis using Porters five forces

The threat of new entry(weaker force)- 

• NEXT is threatened by new competitors, especially big label companies that can enter the clothing market quickly due to their capital, knowledge, and power. Given its brand positioning, NEXT has a place.
• Brand loyalty is affected by the arrival of new brands.
• Since Next’s major customers are generation x shoppers, technological advancement have made visibility in the market for price comparisons. 
• Economies of scale, access to distribution and capital requirement makes new entry a weak force.

Threat of substitute product or service(weak force)

• The product or the business itself can both be substituted. If a customer is dissatisfied with a product, they can switch to another one or choose a different company.
• There aren't many alternatives, and they're all more expensive. Because substitute products are less expensive but of inferior quality, they have little power. 
• Next, like M & S, sells footwear and home goods in addition to clothing, this may lead to getting substituted at times.

(Schilbach, 2001)

Bargaining power of suppliers(medium force)

• The clothing industry provides several range of supplier selection and availability which makes the suppliers to have less control over pricing.
• The products available in market are of almost similar standards, thus there is always chance for getting substituted as a supplier. 
• Sincae high cost of working labour in UK, most clothing products for Next is manufactured in China and Turkey. There is medium force of bargaining power for suppliers due to rising number of cheap labours across Eastern Europe, North Africa and Asia.  

Bargaining power of Buyers

• Most Next customers are considerate of the quality at the price range, so buyers have limited option of the range. 
• Customers now have a variety of options thanks to the emergence of new brands and online shopping, and this aspect has a significant impact on their purchasing power.

Competition in the industry

• Top existing competitors are M & S, Debenhams, Arcadia group. Currently Next is the market leader among its rivals.
• Innovation, rising cost, strategies are the challenges faced by Next and its competitors.
• Debenhams and M & S have invested heavily on Internet business which can become a competition.

(Schilbach, 2001)

Internal Analysis using Marketing Mix

The seven P’s of marketing mix are Product, Price, Place, Promotions, People, Process and Physical evidence

1. Product-

• Product sold by Next are of high quality standards
• There are large range of product collection and portfolio broadness for products offered by the company
• The products are highly differentiated than others in market which is considered as unique

2. Price-

• Next offers premium pricing for its products due to its superior quality and brand recognition
• Next uses strategies like bundle pricing for some product to increase the volume of sale
• The price for online products are higher due to transportation charges

3. Place-

• Next have three channel of distribution, first is through direct online sale second through wholesalers and then final sale through retailer, and lastly through direct retail selling 
• Next has over 500 retailers for its distribution and over 500 suppliers for providing raw material and final product
• For offshore locations, Next uses partner agents for distribution of its products

(Addison, 2019)

4. Promotions-

• Next uses conventional marketing techniques like advertisement in magazines, hoarding, TV advertisements which have special appeal among its customers
• Digital marketing have also been used by Next for targeting mainly younger generation of customers. Various social media network and website have been selected as the medium
• Various rewards programmes have been initiated by Next such as loyalty card which can be used for subsequent purchases.

5. People-

• The employee and other staff at the company is well trained and Next ensure all the personals to undergo and complete the training process
• Next provides reward for its employee such as providing stock of the company thus providing the ownership
• There is huge focus on strengthening of organisational management
• There is a creative and safe environment provided by the Next for its employees

6. Process-

• The operations at Next are clearly planned and standardises
• Quality standard and control measures are done at every stage of process
• There is maintenance and help desk for any query 

7. Physical evidence- 

•  The store atmosphere is creative and comfortable
• Store design and accessibility is ensured throughout the store
• Packaging provided by Next is unique and attractive   
• Website design provided by Next is user friendly and easy to navigation

(Addison, 2019)