Question

External Business Analysis.

What is the nature of competition within the industry in which Ulta is competing? Suggestions: PESTEL, 5 forces, EFE, CPM, I/0 or RBV.

Answer 1

1. PESTEL

PESTEL Analysis is a tool used to analyse and monitor the environment of a company. it includes different areas within the company. They are as follows:-

• Political
• Economical
• Social
• Technological
• Environmental
• And Legal

Political Factors

The profitability and existence of any company are affected by govt. policies, it will impact the economy and consumer buying habit. Each country should have regulations like which product can be imported and exported. If the company offering food items must need health guidelines by the govt. If they don't it could lead to legal troubles of the company.

Economical factors

It depends upon the economical performance of the company. It often taken into consideration how business is likely to perform, investors also rely on economic factors. The supply and demand which affect the free flow of goods and services

Social Factors

Sometimes people are buying goods in bulk quantity and shift in consumer behaviour will affect the Social element

Technological Factors

The modern business is adopting software, hardware and innovations in technology, but small industries cant exist in the market

Environmental factors

For instance. A food manufacturing industry may affect the inverse climate, likewise, soft drink company may exploit the groundwater

Legal factors

An industry should face the legal troubles from govt. like taxation law, labour law and more. One company provides services then international law coming to the place. it may lead to many problems like bankruptcy

5 FORCES

This model is introduced by Micheal Poter for analysing competition within the industry

1.Bargaining power of Customers

The ability of customers to lower the price of the product to their desired level is one of the force. The has more power to negotiate for a better deal, independent customers will have an easier time charging higher prices to increase profitability.

2. Bargaining power of buyers

In this factor, a supplier can drive the inputs. The supplier has more power to drive input and take advantage of trade. A company can keep the input cost lower & higher the profit

3.New entrance to the industry

If the new entrant is an effective competitor, the established company's position drastically weakened. If an industry has no competitor can charge a higher price and negotiate in better terms

4. Competition in the industry (Rivalry)

The group of companies with equivalent products and services they offer it reduces the power of the company. If the supplier is able to offer a better deal or low prices the rivalry is low. a company has the power to charge a high price can achieve high profit

5.Threat from substitutes

The company produces goods and services for which there are no close substitutes will have more power to increase the price when substitute are available customer can forge buying a product.

EFE Matrix

This strategic tool used to evaluate the internal environment of the firm including PESTEL

It includes:-

Opportunity

• It includes the govt. may lift the trade ban and sigh new trade agreement with the countries
• Govt. ready to decrease the tax rates
• Market growth

Threat

• Expiry of the contracts
• Natural disaster, war, and calamities
• Entry of Competitors

Competitive Profit Matrix (CPM)

It is a tool used to analyse the competitors, Strength and weakness of the company. It identifies critical competitor and compares the company's strength and weakness with them. It uses Critical Success Factors

I/O Model

The i/o model based on the external environment . It said that the external pressure is a thing to be kept in mind while making any strategy by the industry. Also according to this model the firm should have similar resources if they are supposed to compete  each other.

• The external environment poses a series of constraints and pressures that the company must overcome to achieve its strategy.
• Firms operating under the same industrial sector have access to a similar type of resources.
• The resources under the company’s control are mobile.
• The people working in the company are rational human beings.

RBV Model

RBV model used to gain external resources using existing resources. The resources have a major role in helping company's to achieve performance

There are two types of resources

1. Tangible Resources

Includes land, buildings, machinery, equipment, capital & labour It can easily buy and sell

2. Intangible Resources

It has no physical appearance like brand reputation, trademark, Intellectual Property Right. It can't buy and sell