Macro Environment Analysis for Smyths Makreting Strategy

Smyths Strategic Marketing

Contents

Introduction

Macro Environment Scan

STEEP:

Micro-Environment Scan

Company:

Customers:

Competitors:

Suppliers:

Intermediaries:

Stakeholder/Public:

SWOT Analysis

Strategic Recommendations

Conclusion

References

In this report, the marketing environment is scanned thoroughly by using different frameworks. Macro and micro are two forms of environment, which assessment is critical to make informed marketing decision. For analyzing marketing environment, Smyths a UK based toy retailer is selected. By using STEEP framework, macro-environment of the selected firm is scanned. Micro environment is also analyzed. On the basis of macro and micro environment, findings are developed in related to the selected firm by employing SWOT framework (Silver et al., 2016). On the basis of findings, strategic recommendations are made for Smyths. Thus, the report includes the way of making strategic recommendations.             

STEEP:

For making macro environment scan, STEEP framework is used:

Socio-cultural factor

The population of UK is growing rapidly and it became 65.5m in 2016. In UK, the number of people aged between 0 to 15 years is reduced from 19.2 to 18.9 from 2006 to 2016 (ONS, 2017). Parents prefer toys, which provide opportunity of learning to the children. The preference of parents and kids has shifted from fad toys to learning based toys (Carter, 2017). Digital entertainment is becoming popular choice among the children of UK. Children spend 30 minutes to play outside in a week (O’Grady, 2016). The preference of consumers for toys is evolving constantly and this is likely to have considerable impact on the market share of Smyths.

Technological Factor 

In UK, innovation becomes a key aspect of business operations in which technological infrastructure plays a great role. The technological infrastructure is quite competent to support the operations of the business in an effective manner. Due to this, the demand of innovative toys is likely to increase more rapidly in the UK market. Smyths may face competition in terms of developing innovative toys to the customers and it could have either positive or negative impact on the firm’s ability to sustain and increase the market share (Robertson and Breen, 2013). The capabilities of conducting research and development will require intense development for increasing consumer base. Apart from this, internet technologies in this country is also increasing rapidly, which may have negative impact on the market share as it diverts interest of children towards the digital entertainment (Follett, 2014).  

Ecological/Natural Environment Factor

The cost of energy and the level of pollution are increasing in UK, which may have considerable impact on the cost of manufacturing toys. Due to this, Smyths may face considerable in reducing cost of the offerings and to retain and attract the customers (Vaughan, 2017). It could have negative impact on its ability to increase market share. The demand for ecofrindly toys is growing rapidly in UK thus the environmental concerns tend the products’ suppliers to change their ways of manufacturing and marketing the toys (Lorna, 2016). The trend towards the environmental concerns may encourage Smyths to adopt the eco-friendly practices in operations such as reducing carbon footprint, waste and efficient use of environmental friendly materials.

Economic Factor:

The economic conditions of this country become vulnerable due to the “Brexit”. The rate of employment, GDP and inflation has affected greatly and this caused great impact on the economic growth (Bowler, 2017). The rate of UK economic growth due to which the household income has squeezed at the considerable level. This economic condition is likely to affect the demand of toys and consequently sales of Smyths (Perlam, 2017). Smyths may face problems and intense competition in terms of attracting customers and developing market share. Apart from this, the performance of economy is expected to decline, which may force firms to reduce cost of operations to sustain profitability.             

Political-legal Factor

The political and legal environment of UK for the operating firms becomes uncertain due to the decision of Brexit. This is one of the major events, which made the nation’s political and regulatory environment quite vulnerable. The exit of UK from the European Union (EU) through Brexit becomes a source of creating vulnerability in the rules and regulations, which may have negative impact on the ability of Smyths to handle the legal concerns and to operate effectively (Giles, 2016). The government of this country supports the growth of toy industry due to its contribution in the economic growth through the creation of job opportunities. But, government also raises consumer safety concern due to the use of toxic material in manufacturing toys (Begg and Mushövel, 2016). Toys safety regulations of UK may become stricter, which may have considerable impact on the market share of Smyths.

The scan of micro-environment includes analysis of the firm’s internal environment. In this, a scan of key related stakeholders such as suppliers, customers, competitors, intermediaries and stakeholders is conducted (Silver et al., 2016). Below is the analysis of Smyths’s internal environment is performed:

Company:

Smyths entered the UK market in 2007 and growing rapidly. This company offers large range of products in toys, baby, outdoor and other games at the low prices. This firm has a reputation as one of the leading toy retailer with having around 100 stores at the different locations in UK and Ireland (Smyths, 2017). The presence of this company is growing rapidly in UK. British Toy & Hobby Association awarded this company award of “Overall Toy Retailer of the Year Award”, which gave its recognition as excellence in the toy retailing (Smyths, 2017). It procures the products from the different suppliers. Pre-tax profits of the company went up in 2016 from £5.96 million to £10 million, which indicates its profitability become double in a year (Jahshan, 2017).  

Customers:

Smyths offers toys for the all ages which belongs to high and middle income class. They are the key buyers of this company, which seek fun, learning and creativity from the offerings. Customers make selection of offerings by either comparing online toy’s stores or visiting different physical stores. The range and prices are compared by the customer to purchase toys. Physical and online stores both are preferred by the customers. The sales of toys are mainly seasonal as most of the sales are made by the customer during holiday and festive season (Clark, 2011). Internet, TV advertisement and peer group are the main source of information for the customers.

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Competitors:

Toys’R’Us, Argos, Mothercare PLC, The Entertainer and Early Learning Centre are the key competitors of this company. These companies has significant market share in the UK market. Toys’R’Us and Smyths both are dominate players of this market (Mal and Rodger, 2017). Toys’R’Us is key competitor of Smyths, which have presence in the international market. This company has expansion strategy, which gives this firm the benefit of economies of scale. It also has more efficient distribution network and strong online presence. The nature of competition in this industry is intense as number of strong players operates in the UK toy market. Consolidated is the competitive structure of the industry as the size of the industry is large but small number of firms dominates the market (Dawson and Lee, 2014). Due to this, Smyths may face problems in capturing market share.

Suppliers:

The availability of supplier and cost influences the business of Smyths at the considerable level. Innovation is the key aspect of UK toy industry and thus patents increases the bargaining power of suppliers, which may increase dependency over the suppliers. There is lack of substitute of the retailers and it may influence ability of this company to bargain with the suppliers (Clark, 2011). The customers’ expectations are evolving continuously in UK toy market due to which Smyths may need to improve relations with the suppliers. Paper and plastic are two main materials to manufacture toys and thus increasing environmental concern may affect the availability of these material and consequently bottom line of the firm (Thompson and Martin, 2010). Digital entertainment and online games provide substitutes to the customers and thus it may have adverse impact on the ability of this firm to attract the customers.

Intermediaries:

The presence of strong intermediaries in UK toy market such as physical distribution, financial and marketing services agencies may help this firm to establish more stores in this country and to expand the consumer base. In presence of strong network of distribution, it could be less complex for Smyths to expand business within and outside UK (Silver et al., 2016).

Stakeholder/Public:

Customers, shareholders, regulatory agencies, environment and employees are the key stakeholders of Smyths, which may influence its ability to achieve the objectives. The needs and preferences of customers may tend this firm to make changes in its offerings and consequently operations (Heinemann and Schwarzl, 2010). Regulations regarding customer safety and environmental protection in UK are also evolving overtime and this has considerable influence over the operators of toy industry. Due to this, this firm may need to take measures to ensure consumer safety and to protect environment. Employees’ behaviour in stores is an important factor to encourage child and their parents to purchase a toy (Gov.UK, 2017). Their way of demonstrating a toy to the customer may have considerable influence on the potential to increase consumer base and to satisfy them.      

On the basis of the outcomes of the macro and micro marketing environment analysis, below findings is concluded in relation to Smyths. The findings are presented by using SWOT framework.

Figure 1: SWOT

Strengths

Recognized name in UK

Reputation as quality toy retailer

Effective presence in UK and Ireland market

Great customer service

Competitive prices

Wide range of offerings

Weaknesses

Lack of presence in international market

Weak distribution network

Lack of international experience

Absence of differentiation  

Opportunities

Increase in population

Expansion in international market

Trend of online shopping

Improving in-store shopping experience

Social responsibility in operations

Innovations

Less time to play outdoor games

Threats

Vulnerable economic conditions

Digital entertainment

Increasing trend of online gaming

Consumer safety issues

Environmental regulations

Intense competition

Cost of R&D

Consumer safety regulations

Decline in number of children in population

On the basis of above table, it can be stated that the areas of strengths and weaknesses of Smyths are several. This firm is one of the leading toy retailers in UK with having reputation as quality and cost-efficient toy retailer. It indicates its potential to take advantage from the increasing population and trend of online shopping (Proctor, 2014). Competitive pricing and great customer service could help this firm to improve presence in the market despite of the presence of intense competition and vulnerable economic conditions.

The weaknesses of this firm may affect its ability to capture the opportunities for improving consumer base and sales. Its absence in the global market makes it highly dependent on the UK market growth. It is likely to create uncertaininty in the operations. By using reputation and recognition in the market, it could capture the opportunities of expanding market in international market, which would be effective to reduce its financial dependency over the UK market (Hill et al., 2014).  

Firm may face intense competition due to the reduction in the size of target audience and increment in online gaming trend as it is likely to squeeze the market size, which may increase competition among the players. This is likely to affect the business of Smyths and consequently profitability. By making investment in R&D, this firm may understand the changing needs and preferences of customers and to bring innovations. This could be effective to bring differentiation in the offerings and to reduce the pressure of competitiveness (Parnell, 2013). By conducting socially responsible behaviour, Smyths can follow regulations related to the consumer safety and environmental protection. This may help firm to increase consumer base and market share.

Apart from this, this firm has also opportunity to differentiate the offering through the improvement in-store shopping experience. It could help this firm to attract the parents and children both and to increase the consumer base. The trend of online shopping can also be used by this firm as an opportunity to differentiate offerings and to create competitive advantage. By enhancing features of website, Smyths can improve shopping experience and it would be helpful to enhance the consumer base (Egan and Thomas, 2012). It is analyzed on the basis of SWOT analysis that this firm has potential to covert its weaknesses into strengths by capturing available opportunities and limiting threats. 

In order to grab market opportunities and offset the threats, it is required for Smyths to consider effective strategies to explore its strengths and overcome weaknesses. From SWOT, it is determined that Smyths’s quality at competitive prices and great customer services are quite well to draw the attention of the customers towards its products, but lack of differentiation is a big issue for the firm. Therefore, to obtain customer loyalty and handle the intense competition in toy industry, it is required for the firm to focus on differentiation strategy represented in strategy clock as below:

Figure 2: Strategy Clock

(Source: Dalton, 2016)

The firm needs to focus on providing wide range of products with innovative ideas that can be effective for it to get sustainable competitive advantage in the market. This strategy will be effective for the firm to consider the increasing trend of online gaming too and get advantages by focusing more on the digital entertainment (Dalton, 2016). At the same time, the firm can more focus on environmentally friendly aspects in manufacturing processes to attain sustainable competitive advantage in the toy industry. Company may attract the customers who want quality with affordable price that will make it different from others and increase market share in the industry. 

At the same time, the firm needs to use market development and product development strategies as per Ansoff Matrix. Market development strategy may enable the firm to launch its existing products in new markets. There are significant opportunities of expansion in international market in toy market. Therefore, the adoption of market development strategy will be effective for Smyths to expand its business in new markets and overcome from its weakness of lacking international experience (Blythe, 2013). 

Figure 3: Ansoff Matrix

 (Source: Schleier, 2010)

Apart from this, product development strategy may be useful for the firm to grab the opportunities related to improving in-store shopping experiences, online shopping and innovations (Schleier, 2010). Through this strategy, the company can use new distribution channels including more focus on online trading and introduce new innovations in its existing products. This strategy also complements the adoption of differentiation strategy (Dalton, 2016). However, the focus on these strategies may cause high cost of operations, but it can be compensated by focusing on economies of scale and countries with cost effective resources of production (Ackermann and Eden, 2011). It can be helpful for the firm to handle the threat related to increasing cost of production and get competitive advantages in the market and significantly improve market share.      

Based on the above discussion, it can be stated that there are several opportunities and threats for Smyths in toy retail industry but by adopting effective strategies including market development, product development and differentiation strategies, the firm may create competitive advantage and increase its market share. 

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