Economic Impacts

P5 – describe the influence of two contrasting economic environment on business activities within a selected organization

In this section for P5 I am looking at ASDA, this is because I know more about ASDA and its easier to talk about  

A trade cycle –

Boom –

Boom is generally very good for a business as the customers will usually have more money, when a boom happens the unemployment rates go down in the economy; this helps ASDA because the shoppers will have more money than if they were unemployed. This means that ASDA will put more money into their stores so they may need to employ more so they will also reduce the number of unemployment more.

Although a boom could also be bad news for the more valued stores like ASDA as the people with more money will go to the higher end supermarkets like M&S, Sainsbury’s etc, as these target people with loads of money. Also this may mean that the ‘eat in’ trend may drop and may not become as popular as, the high earners will go out and benefit the restaurants. Then ASDA must then put out more luxury products on sale and an example of this is their extra special range.

ASDA may also be able to then charge more for items as the customers become less price aware, but they must also keep competitive, also during a boom customers may not want value clothing like ‘George’ although it as a good reputation, they may prefer to buy the expensive brands. For this not to happen the marketing teams will have to put adverts out there that show luxury and great fashion and not focus on the ‘value’ side to it as much.

Also during a boom ASDA may need or want to recruit directors that understand the more exclusive side to the business, this is usually what the higher end supermarkets do as they will understand the business and what type of customer ASDA will need to target now.

 Recession –

A recession is a period of general economic decline; and is typically defined as a decline in GDP, and is typically a drop in the stock market, an increase in unemployment also people fear that they may lose their jobs, and often do which means they will have to cut back and spend less.

 Also during a recession ASDA is one of the ‘value’ supermarkets that as performed well compared to others, this is because ASDA as always sold itself as a value supermarket. But everyone still needs to buy food so they look for somewhere cheap, which means ASDA is the choice for them. Even though they have lost some customers to value stores like ALDI or LIDL this is because they are also having an increase the market share.

This means that the customers are less likely to go out to eat, and not go to the cinema, this means they will prefer to eat in and by treats for the family to have at home, so therefore they are selling products as family packs and an example of these family packs are either crisps or chocolate have been of an increase.

Although if the recession demand falls I think that ASDA’s sales could actually increase as people switch from Sainsbury’s and M&S to ASDA, also other customers switch from having branded products and an example of this is by having Kellogg’s to having ASDA’s smart price.

Most businesses during a recession will need to cut costs unless they are making great sales like ASDA they may need to look at reducing the costs. Also wages are a huge cost and around 2003 they cut out a layer of managers in the head office. The advertising and in store promotions will need to show great offers and values for all, they may also need to push special discounts on home shopping, through emails and leaflets. ASDA do this to show that they are cheaper than the other supermarkets.

Economy –

The economy is the system of production, exchange, distribution and the spending of the goods and services of the country. Inflation tends to increase the spending and will encourage borrowing at the expense of savings. If the prices are rising quicker than the income, then many individuals will tend to buy products at the current prices before goods and services become more expensive and less affordable.

When unemployment is high in a recession it then means that people won’t have as much money to spend on products, also the businesses don’t have much to sell and will have to close, this will then lead to more people becoming unemployed which will lead to more of a downward spiral.

Government policy –

Fiscal –

Fiscal is a policy that affects the level of tax rates and interest rates and the government spending, this is an effort to try and control the economy. This is budgeting the public spending.

Monetary –

Monetary is when money is cheap and when this happens it’s a good time for borrowers to take a new debt or renew the existing debts, but this is a downfall because when borrowing more than one person can afford to repay was one of the big issues in the recession before. This is done to then try boosting the economy out of this recession.

Supply side measures –

The supply side measures is a way to how to improve the productive ability of the economy, it tends to be associated with monetary, this tends to emphasize the benefits of marketing, such as making labor markets more flexible.

M3 – analyses the impact of changes in demand and supply of ASDA

Demand curve - 

The demand curve is a graph that shows the slop downwards of the quantity of the product, and the demand curve for the products usually tend to be aggregated, this is so them market will have a demand curve. Also if the demand in ASDA slows then the business would need to look at why this is happening, although they would firstly ask the buyers to assess their ranges and also why there are selling well. An example of this is that customers would be going elsewhere.

Also the marketing data would be able to show where ASDA were losing their customers to, and also showing whether their competitors are selling themselves differently and how. Also it the competitor are selling different and popular products, then ASDA will need to take immediate effect to sell the same type of product, although the buying team will question why the company didn’t sell them products earlier and this may risk of some people losing their jobs, if the targets have not been achieved.

The marketing team will also have to review to see whether they have the best offers in store and in magazines, also they will need to work with the stores to ensure that the stock is being displayed well showing of all points of sale. The stores will be checked by the regional managers and the top directors to check that it’s all clean and tidy and also all products are available for customers to buy at all times. Also the car parks must be easy to access and that the trolleys available for the customers to have an easy and hassle free shop. This will also mean no queues at check outs and polite staff making it a pleasant experience for the shoppers.

This chart shows you the demand and supply of a product and example of this would be cornflakes and if the demand is higher than before then the customers supply will be extremely low, as they will go for a cheaper product because the demands for the cheaper product are low, this means the customers supply will be really high. This is suitable because of the price where as when they meet in the middle this will then show the customers are happy.

Once the stores have been reviewed and the sales are still down then ASDA may need to act quickly to cut costs, and if they do not manage their costs then the business could make a big loss and ultimately closedown and one way of reducing costs will be to cut a layer out of the management team in the head office. This would then mean that other members of staff will need to pick up their roles and then if there are less products to put out on the shelves this then means less colleagues will be needed in store, this will lead to a reduced Rota or staff numbers.

Less demand for particular products then the prices may need to fall and then this will need to be done in a conjunction with the suppliers as they then may need to reduce their cost price if they’re not as popular. Although this is often the case with electrical products and technology when there is new and more popular products enter the market and then customers no longer want the older lines unless they are cheaper.

The influence of demand is where they are trying to set a price but this also means they can either start of at a price where they feel that its overpriced and risk getting little customers supply. Or they could just have a standard price and have more of a chance to get more customers supply.

Another way for demand is by advertising this is good because they can then continuously create advertisements so the customers will see them and then this hopefully will bring in the supply for the company from their customers.

Elasticity of demand is where if you have a product such as cornflakes then the elasticity of this will be where if the price is changing then most of the demands are going to change and this will be because it is only a small product, where has if you compare this to the iPhone 5 there will be lots off demand because more people are wanting this product and this will be inelasticity because if the price changes then the demand will still stay the same because people will still be willing to pay the prices.

Supply curve –

The supply curve is about the availability of a product and a supply curve graph will show an upward slope, this means that the higher the price, the higher the quantity will be supplied and the producers supply a lot more at a higher price because when selling a higher quantity product will be at a higher price and it will then increase the revenue.

When supply changes it can also affect the price and if the supply is short then the price will often rise and an example of this is strawberries as if the weather has been poor, but in contrast to this if there is too much production then the prices will take a dramatic fall. Also is ASDA had a shortage of supply than any other supermarket then they are likely to also have problems and an example of this will be milk shortage as the suppliers were on strike due to the low prices.

This then means that ASDA will need to work closely with their suppliers and farmers to try finding a solution to this problem that will please everyone without upsetting their customers. They must also work with public relations to ensure that ASDA will not have a bad reputation in the newspapers or television reports. In some cases that are extreme the government may also need to get involved to help protect both the customers and suppliers in this instant it would be farmers.

This chart below shows you the demand and supply of a product and example of this would be cornflakes and if the demand is higher than before then the customers supply will be extremely low, as they will go for a cheaper product because the demands for the cheaper product are low, this means the customers supply will be really high. This is suitable because of the price where as when they meet in the middle this will then show the customers are happy.

Elasticity of demand is where if you have a product such as cornflakes then the elasticity of this will be where if the price is changing then most of the demands are going to change and this will be because it is only a small product, where has if you compare this to the iPhone 5 there will be lots off demand because more people are wanting this product and this will be inelasticity because if the price changes then the demand will still stay the same because people will still be willing to pay the prices.

Elasticity of supply is where if you have a product such as the iPhone 5 as it has a big demand the higher the price will be and then the higher quality will be and this will keep on going because more people want this product.

Globalization –

Globalization is a process that is there to increase the world-wide exchanges of national and cultural resources. This advances in the transportation and telecommunications that include the rise of the Internet these are also major factors in globalization, generating further economic and cultural activities.

Degree of interdependence –