PESTEL ANALYSIS 1 Essay Example

  • Category:
    Marketing
  • Document type:
    Assignment
  • Level:
    Undergraduate
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Kogan’s PESTEL analysis

KOGAN’S MACRO ENVIRONMENT ANALYSIS

PESTEL analysis

PESTEL analysis is essential in organizations that seek growth and expansion. Macro-environment factors pose challenges beyond the control of an organization. The external environment is so dynamic and to achieve competitive advantage, businesses ought to understand the macro environment they are operating in ( Kotler and keller, 2012). For instance, Tax changes, new laws, trade barriers, demographic change and government policy. Thus for Kogan to perform optimally and shield itself against future hindrances it has to understand PESTEL factors affecting the business environment. These factors are always beyond a company’s control.

Political factors

Political factors include government interventions that affect how businesses operate. Governments can at time ban or block some activities, posing as a challenge to operations businesses. For instance, is the Australian government restricts internet access; kogan will end up losing a lot of customers. Australia’s tax regulations relating to remittance of tax online is likely to affect Kogan’s operations given that it sells its products online. Most businesses hate uncertainty, and political factors pose greater risks to the continuity of operations in any business. However, Australia political environment is stable and progressive

Investments in Australia is guaranteed and secured this is associated with the stability of its political and regulatory environment. The openness and progressive nature of its political environment provides investors with sureness and certainty (Penrith, 2008). The Australian government is ranked highly in terms of transparency and effectiveness. The online retailing market is highly supported, and the government has in many cases given tax breaks to enable online retailing stores match other global competitors. Australia’s stable political environment has led to it being considered and preferred by most multinational cooperation in the Asia-Pacific region (Daly, 2003).

Economic factors

Economic factors affect business operations in the sense that it may affect business profitability (Kotler and keller, 2012). For example, when exchange rates and interest rates change, company profitability is at stake. Kogan, being an online based company specialized in the sale of various commodities ranging from electrical appliances to home appliances, is greatly affected by exchange rates because customers have to make payments online. Similarly, Kogan’s business activities are affected by inflation and changes in interest rates. Kogan, however, operates in a country with an advanced GDP and most of its consumers can comfortably afford Kogan’s products (Junankar, 2013).

The Australian economy is stable thus currency exchange rates are relatively cheap thus Kogan enjoys surging numbers of foreign customers making inquiries while others buy. Unlike eBay and amazon the Australian economy presents Kogan with a chance of offering customers moderate prices due to the difference in bargaing power of the Australian dollar against the American dollar. Customers with American dollars get more value for money by from other online stores as opposed to those who spend their money doing online retailing in Amazon.

The cost of living in Australia is relatively cheap thus giving customers surplus amounts to spend on luxuries such as high-tech products like phones. Australia enjoys advanced economic growth rates than even the USA. Its GDP is higher compared to countries that are developed like France thus offering more business opportunities to companies in terms of capital and customers. On the other hand, Australia enjoys lower risk levels due to its steadily strong GDP growth, stable interest rates, rising exchange rates and a low rate of inflation (Junankar, 2013).

Most of the Australian cities enjoy low levels of unemployment at 5% a clear indication of an advanced economy and a viable market (Baten, Jörg 2016). Thus, it offers the kind of market a company like Kogan can thrive in if it strategically places itself in the consumers’ minds.

Social factors

A clear understanding of diversity in terms of norms, believes, and cultures is important in business operations inferring to the demographics and geographics of consumers. This is because the business environment is made up of a variety of elements that tend to affect it from a cultural perspective (Kotler and keller, 2012). Socially, Australian’s age and gender distribution are evenly distributed factors. Similarly, Australians education level varies, with majority of the population being made up of middle class. Australian citizens’ poses fluctuating buying habits, thereby affecting Kogan from a social perspective. (Hasan, Hasan, & Ivonne, 2013).

Organization need to understand how Changes in social trends affect the demand of products. A successful company ought to socially understand its consumers if they can be able to offer them better services and expand the market share (Kardes et al., 2015). A clear understanding of the Australian classes and castles will help Kogan target its consumers adequately. Consumer culture is on the rise in Australia, most teens have an appetite for high end products thus Kogan should target this class of consumers with through vigorous advertisements. Education, on the other hand, is readily available, and most Australians seek self-gratification and actualization. This is a clear indicator that young people in Australia psychological will spend more on the latest gadgets so as to keep up with innovation and change.

Technological factors

Technological factors affecting businesses involve the rapid technological advancement. Technology changes at a higher rate in Australia and Kogan has to comply with this change lest it be overtaken in terms of competition. In Australia, besides the internet offering customers a greater base from which to select goods online, the online business approach also necessitate that Australians go beyond their day to day shopping routine (Moshrefjavadi et al, 2012). Australians have to cope with technological advancement in order to improve their selection criteria online. Kogan, therefore, has a challenge in terms of improving on its customer interface to boost on customer retention. Being an online retailing company, Kogan should take advantage of grants being offered by governments to carry out research and dominate the online retailing business where American companies are flourishing. Australia has specific departments within the government that supports technology and innovations, thus as a country it’s understands the dynamics online shopping and cloud computing and more often it encourages its citizens to shop online without fear (Kardes et al., 2015). This is attributed to its fraud deterrent policies that seek to keep Australia safe and move the country to a paperless economy.

Environmental factors

Environmental factors ideally relate to how a company undertakes its operations. Environmental factors involve regulations set to secure the environment. Kogan’s disposal of used materials is proving to be a challenge, since the disposal of waste to the environment is not only illegal but is also dangerous to human health (Kardes et al., 2015). Laws relating to solid waste passed in Australia may limit Kogan’s operations. Australia advocates for recycling to keep the environment hazardous free. Seek to protect its citizens from pollution and radiation thus a company like Kogan needs to establish servers far away from human environment and provide its employees with the necessary materials to help combat radiation having that it deals with technological gadgets.

Legal factors

Legal factors relate to laws and regulation passed by the state under which the company is operating. These legal factors in Australia may affect Kogan’s operations. For instance, government regulations relating to what and how to sell online, affects a company’s profitability. Australia introduced requirements for firms to recycle, an increase in the minimum wage which affects pricing of products. Regulations seek to protect consumers, but they may hinder a business’ operations as customers will always look for alternatives. Legal changes introduced by regulatory bodies have been known to affect a firm’s costs leading to customer boycotts on some goods and services from particular stores (Kardes et al., 2015).

Financial ratios

Over the last couple of years, Kogan has performed quite well in its operations with its profitability registering an upward trend. For instance, after three years in operation, Kogan made a whopping $3million with its trend in profitability increasing and in its sixth year in operation, it made $6 million («Kogan.com Ltd, KGN: ASX financials — FT.com,» 2016). In fact, since its inception, Kogan’s rate of profitability has been between 200% and 300%.In the year 2014, Kogan’s revenue turnover was over $300 million (Robin, 2012)

Financial ratios are accounting performance measurement tools that help gauge a company’s performance. Financial ratios help measure a company’s profitability, liquidity, gearing as well as its return on equity. Kogan’s gross profit margin ratio in the year 2015 was at 15.48%, meaning it made 15.48% gross profit in relation to its sales («Kogan.com Ltd, KGN: ASX financials — FT.com,» 2016). Similarly, its Net profit margin ratio in the same year was 0.38%, signifying its stability in its operations. Both gross profit and net profit margins indicate that the company’s performance is good. Kogan’s Return on Assets ratio of 2.51% in the year 2015 indicates a good rate at which the company’s liabilities are being repaid by its assets. Similarly, Kogan’s return on equity ratio of 10.25% in the year 2015 signifies its ability to pay its equity share holders dividends at a rate of 10.25%. In the year 2016, Kogan made an increment on its reserves by close to 350% making its new cash reserve level 1.4 million («Kogan.com Ltd, KGN: ASX financials — FT.com,» 2016)

Competitors

Kogan’s Current competitors

Kogan being an online based company is facing a lot of intensive competition from rival firms operating in the same industry, more so the telecommunication industry. Kogan, as earlier indicated, deals with electronic appliances, home appliances, phones and even cereals. With its capability to operate in various industries, Kogan is fighting for retention of its telecommunication market share having that companies like Samsung and Apple are aggressively penetrating the Australian market. For example, Kogan’s phone, Kogan Angora and Samsung’s Galaxy S7 Edge are currently competing. Similarly, Kogan’s Kogan Angora is currently competing with apple’s apple iPhone 6 (policy et al., 2015).

Kogan’s potential competitors

Kogan’s potential competitors include giants like Amazon. Compared to Amazon.com, Kogan.com is extremely miniscule. Amazon makes close to $300million in revenue per annum, whereas Kogan makes only 0.3% of amazon’s revenue, making. Companies like Amazon and eBay will potentially eclipse Kogan from the Australian market if it doesn’t keep on analyzing its environment and identifying opportunities for growth.

Kogan’s attractiveness

Kogan’s success in its business operations is owed to its ability to effectively meet customer requirements and its development and adoption of effective competitive strategies. Kogan’s reliance on its brand name is minimal (Robin, 2012). Kogan capitalizes on its ability to manufacture and sell electronics through its online platform. Kogan boasts of its ability to avail required information online, thereby enhancing customer satisfaction. One of Kogan’s competitors, JB Hi-Fi, has been struggling to retain its electronic s market share that is being taken by Kogan. JB Hi-Fi has been undertaking extensive discounting on its electronics to enable it retain its market share (Robin, 2012). Additionally, to cement its competitiveness, Kogan’s innovative strategies are amazing. Kogan greatly relies on management of its economies of scale to beat its competitors.

Kogan’s success factors

To continuously improve on its performance maintain competitive advantage, Kogan’s move has been to out beat its competitors by innovating. For instance, in order to increase its sales, Kogan invented and patented an innovative technology known as Live Price. This technology allows customers discounts only if customers purchase a company’s product as early as it is produced. This ensures that the company makes voluminous sales and consequently boosts its profitability. Similarly, Kogan’s research tools have seen it out beat its competitors.

Reference

Baten, (2016). A History of the Global Economy. From 1500 to the Present. Cambridge University Press. ISBN 9781107507180.

Daly, Margo (2003). The Rough Guide To Australia. Rough Guides Ltd..

Junankar, P. (2013). «Australia: The Miracle Economy». Institute for the Study of Labor.

Kardes et al., (2015). Consumer Behavior; 2nd edition; Cengage Learning, Stamford

Kogan.com Ltd, KGN: ASX financials — FT.com (2016). . Retrieved from http://markets.ft.com/data/equities/tearsheet/financials?s=KGN:ASX

Kotler, Philip & Keller, Kevin (2012). Marketing Management. Pearson Education Limited

Moshrefjavadi, M. H., Rezaie Dolatabadi, H., Nourbakhsh, M., Poursaeedi, A., & Asadollahi, A. (2012). An analysis of factors affecting on online shopping behavior of consumers. International Journal of Marketing Studies4(5), 81–91.

Penrith, Deborah (2008). Live & Work in Australia. Crimson Publishing. p. 478. ISBN 9781854584182.

Policy, R. P., Terms, Design, S. W., Optimisation, S. E., Optimisation, C., & Media, S. (2015).Market snapshot report — Kogan electronics | ROI Blog. Retrieved August 31, 2016, from News, http://www.roi.com.au/blog/news/consumer-electronics-australia-market/

Robin, M. (2012). Why Kogan is triumphing while JB Hi-Fi falters. Retrieved August 31, 2016, from leadership, http://www.smartcompany.com.au/people-human-resources/leadership/36925-why-kogan-is-triumphing-while-jb-hi-fi-falters/