Question

Discuss the six dimensions (Political, Economic , Sociocultural (and demographic) , Technological, Ecological (physical env’t), Legal ) of general, or macro, environment. Take notes on the relevant: i. Describe impact. ii. Business opportunities? iii. Airlines and other companies in the airline industry that stand to benefit?

Answer 1

Discuss the six dimensions (Political, Economic , Sociocultural (and demographic) , Technological, Ecological (physical env’t), Legal ) of general, or macro, environment. Take notes on the relevant: i. Describe impact. ii. Business opportunities? iii. Airlines and other companies in the airline industry that stand to benefit?

Answer-

The Macro Environment consists of 6 different forces. These are: Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological forces. This can easily be remembered: the DESTEP model, also called DEPEST model, helps to consider the different factors of the Macro Environment.

The company is not alone in doing business. It is surrounded by and operates in a larger context. This context is called the Macro Environment. It consists of all the forces that shape opportunities, but also pose threats to the company.

1. Demographic Forces in the Macro Environment

Demographic forces relate to people. The name refers to the term Demography. The latter refers to the study of human populations. This includes size, density, age, gender, occupation and other statistics. Why are people important? Because, on the whole, their needs is the reason for businesses to exist. In other words, people are the driving force for the development of markets. The large and diverse demographics both offer opportunities but also challenges for businesses. Especially in times of rapid world population growth, and overall demographic changes, the study of people is crucial for marketers. The reason is that changing demographics mean changing markets. Further, changing markets mean a need for adjusted marketing strategies.

Therefore, marketers should keep a close eye on demographics. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on.

Some of the most important demographic trends that affect markets are:

World population growth

Changing age structure

Changing family structures

Geographic shifts in population

2. Economic forces in the Macro Environment

The Economic forces relate to factors that affect consumer purchasing power and spending patterns. For instance, a company should never start exporting to a country before having examined how much people will be able to spend. Important criteria are: GDP, GDP real growth rate, GNI, Import Duty rate and sales tax/ VAT, Unemployment, Inflation, Disposable personal income, and Spending patterns

3. Socio-Cultural forces in the Macro Environment

The Socio-Cultural forces link to factors that affect society’s basic values, preferences and behavior. The basis for these factors is formed by the fact that people are part of a society and cultural group that shape their beliefs and values. Many cultural blunders occur due to the failure of businesses in understanding foreign cultures. For instance, symbols may carry a negative meaning in another culture. To understand these forces, Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc.

4. Technological forces in the Macro Environment

Technological forces form a crucial influence in the Macro Environment. They relate to factors that create new technologies and thereby create new product and market opportunities.

A technological force everybody can think of nowadays is the development of wireless communication techniques, smartphones, tablets and so further. This may mean the emerge of opportunities for a business, but watch out: every new technology replaces an older one. Thus, marketers must watch the technological environment closely and adapt in order to keep up. Otherwise, the products will soon be outdated, and the company will miss new product and market opportunities.

5. Ecological forces in the Macro Environment

Ecological, or natural forces in the Macro Environment are important since they are about the natural resources which are needed as inputs by marketers or which are affected by their marketing activities. Also, environmental concerns have grown strongly in recent years, which makes the ecological force a crucial factor to consider. For instance, world, air and water pollution are headlines every marketer should be aware of. In other words, you should keep track of the trends in the ecological environment.

Important trends in the ecological environment are the growing shortage of raw materials and care for renewable resources. In addition, increased pollution, but also increased intervention of government in natural resource management is an issue.

Because of all these concerns and the increased involvement of society in ecological issues, companies more than ever before need to consider and implement environmental sustainability. This means that they should contribute to supporting the environment, for instance by using renewable energy sources. Thereby, businesses do not only support the maintenance of a green planet, but also respond to consumer demands for environmentally friendly and responsible products.

6. Political forces in the Macro Environment

Every business is limited by the political environment. This involves laws, government agencies and pressure groups. These influence and restrict organisations and individuals in a society. Therefore, marketing decisions are strongly influenced and affected by developments in the political environment.

Before entering a new market in a foreign country, the company should know everything about the legal and political environment. How will the legislation affect the business? What rules does it need to obey? What laws may limit the company’s ability to be successful? For example, laws covering issues such as environmental protection, product safety regulations, competition, pricing etc. might require the firm to adapt certain aspects and strategies to the new market.

As we have seen, the company is surrounded by a complex environment. The Macro Environment consists of a large variety of different forces. All of these may shape opportunities for the company, but could also pose threats. Therefore, it is of critical importance that marketers understand and have an eye on development in the Macro Environment, to make their business grow in the long term.

In terms of the case, it suggests that the environment of airline companies is not very stable, especially the increasing price of fuel which is the key driver of change. From Ryanair profit statement (Exhibit 1a) it shows the fuel and oil cost has increased by €200 million from 2005 to 2006. The increase in fuel costs is 74 percent. The impact to the airlines companies is obvious and the budget airlines may face the trouble more so than normal airlines. Moreover, airline companies also have to concentrate on some other issues. For example, according to the case, they are facing the risks from terrorist attacks which are difficult to predict.

It is not difficult to find the changeability, however it is complex to the airline environment. Some factors, such as legal action and customer demand, also have influence on them. Some of these such as the price of fuel and oil can be predicted, while some of them cannot.

The Pestel Analysis is employed to identify macro-environment influences of the airline industry.

Political: Government wants to strengthen the economy and, consequently, will support local airlines by setting rules, such as preferential rights. Every government however, will probably do so. Therefore there’s no obvious advantage between competitions. The political issues have a wide range of effect, so they are not the key points that budget airlines are facing.

Economic: This is identified as the most crucial factor to airline companies, especially to budget airlines. The influences refer to the macro-economic factors such as the national growth rates and the exchange rates. As budget airlines, they will pay more attention to the operation costs such as fuel cost. It became a big issue for budget airlines because of the increasing cost of fuel. That may reduce the advantages and the companies will be less competitive than before. On the other hand, the recession will lead more people to choose budget airlines.

Social: With the development of Asian countries in particular China, there are more and more people deciding to study or travel in Europe. In recent years, the lifestyle of local people has also changed. They tend to travel abroad to enjoy their lives. Most of these people are not wealthy such as student. The budget airlines therefore, will be their best choice to reduce the travel costs.

Technological: The innovation of technology helps the airline companies reduce costs and carry out tasks more effectively. The new type of aircraft can help to reduce the burning of fuel; and new technology can also make the security check more efficient and accurate.

Environmental: European countries pay more attention on environmental issues, especially greenhouse gases from carbon emissions. Moreover in terms of the case, airline companies have to pay the environmental taxes for the contributions they make to global warming. In particular, it is bad news for budget airlines. Costs will increase and the companies want to maintain good brand image in the consumer’s perception. Furthermore, noise pollution and energy consumption cannot be ignored under such conditions.

Legal: Some legal actions such as preferential airport rights are directed against the specific airlines. As budget airlines, which have higher competitive power, they should pay more attention to the legal forces to prevent loss. On the contrary, they can also take the initiative over illegal aid to rivals.

There are many potential opportunities for the airline companies. For instance, the recession may lead to more people choosing the budget airline rather than the expensive ones; new technology which helps to reduce the usage of fuel; government set the tax at a lower percentage.

On the other hand, the increasing cost of fuel may be the most significant issue most budget airlines face. What’s more, the compensation to passengers, terrorism and security, and customers’ satisfactions will all have potential negative impacts on the airline. In order to achieve lower costs, budget airlines will have to reduce costs from many departments and operations. That’s why lots of customers are not satisfied with the budget airlines except for the price.