Market Segmentation

<Introduction>
PESTLE analysis of the market is indeed needed to determine the right strategy to enter. When a
company decides to enter a new market, a PESTLE analysis is a very important framework for strategic
planning. It is used by strategic planners to analyse the macro-environmental factors that affect a
business. PESTEL stands for Political, Economic, Social, Technological, Environment, and Legal.

<Concepts & Application>

PESTEL requires a deep understanding of the macro-environment in which a business operates. Factors
those beyond the control of the company are identified as external and the elements like PESTLE need to
be analysed to determine the organisational strategy. Let us consider ASDA, a super market giant that
launched its furniture segment in 2006 and since then is in competition with IKEA.
ASDAs success in the retail industry is due to the fact that the company has a vast experience in the retail
market, product differentiation, and cost leadership. Their unique concept is that furniture is sold in kits
that are assembled by the customers at home. The company remains one of the world’s most successful
multinational retailing firms, operating as a global

PESTLE analysis of ASDA entering into Indian Market:

Political factors are how and to what degree a government intervenes in the economy, it includes

o Constitutional System
o Stability of Government
o Business Freedom
o Trade Freedom
o Tax Policies

The decision of ASDA, the supermarket giant , to invest in India will send a positive signal to other
investors who have turned hesitant in view of the UPA government's policy drift on foreign direct
investment. India is in desperate need for such FDI which will bring modern technology. Ikea's decision
to enter India comes on the heels of the Indian government's decision to relax the rules on single brand
foreign retailers in the country. Ikea’s plan is to source at least 30% of its production from the Indian
market. With ASDA also venturing in, it will kick in a good competition with IKEA in Indian market.

ECONOMIC FACTORS:
Economic factors include
o Economic Growth
o Exchange Rates
o GDP Growth
o Globalization
o Interest Rates
o Inflation Rate (cost of capital)
o Labour Costs
o Unemployment Rate
 It is vital to keep prices as low as possible when the retail sector is depressed. IKEA's pricing strategy
targets consumers with limited financial resources. Its products will also appeal to those with higher
budgets through good quality and design. If ASDA plans to enter, the company must ensure that it is
always recognized as having the competitive prices on the market compared to IKEA.

The fluctuating commodity and raw material prices in INDIA result in rising purchasing costs for
ASDA. This will have an impact on the margins of the organization and might lead to passing over
the cost to consumers by increasing prices of most things in the supermarket. Furthermore, rising fuel
costs will have implications right throughout the supply chain of ASDA leading to an overall
situation of increasing prices, resulting in decreased competitiveness. At the same time, ASDA may
also face stiffer competition from local small retailers who offer furniture at more affordable prices-
something which will appeal to cost conscious consumers. This may cause ASDA to reduce its
margins, affecting profitability

SOCIAL FACTORS:

o Population Growth Rate

o Age Distribution
o Perception of Safety.
o Educational Infrastructure
o Employment Patterns
o Cultural Taboos

As Ikea forays into the lesser tap markets of India, social factors may also come into play. Asian societies
are generally more savers than spenders and in such economic certainty, Asian consumers may be
unwilling to spend on new furniture, preferring to save for a rainy-day. At the same time, the more
affluent consumers who are able to spend may be unwilling to buy products from Ikea which has a
reputation of requiring self assembly.

TECHNOLOGICAL FACTORS:

Technological factors include technological aspects such as R&D activity, automation, technology
incentives and the rate of technological change. They can determine barriers to entry, minimum efficient
production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs,
quality, and lead to innovation.

o Emerging Technologies
o Impact of Internet, Reduced Communication Costs
o Rate of Technological Change
o R&D Activity (SEZs)
o Technology Incentives
o Technology Transfer
Ex: RFID (Radio Frequency Identification Device) technology can be used for significant benefits to the
supply chain of ASDA. If adopted, this technology will lead to less inventory for the supermarket firms
resulting in lower cost for the company which could translate into cheaper prices. The ASDA used quality
technology and systems to promote the shorter queues, proper scheduling, tracking and trading patterns,
and staffing. It aims to be more productive and establish employee preferences. The company view in
optimizing everything from the supply chain is also optimizing and managing the workforce to create an
efficient store environment and keep customers happy.
LEGAL FACTORS
o Consumer Law
o Discrimination Law
o Employment Law
o Health and Safety Laws

Legal compliance of ASDA should be implemented with the relevant and applicable laws and
regulations that pertain to the environment, social and working conditions. The company should also
schedule the most demanding requirements to be specific in maintaining the list of laws and
regulations and with the procedures.
Legal: Suppliers must comply with national laws and regulations and with international conventions
concerning the protection of the environment, working conditions and regarding child labour.
Working conditions: Suppliers to respect fundamental human rights, and to treat their workforce
fairly and with respect.
Environment and forestry: ASDA should always strive to minimize any possible damaging effects to
the environment, which may result as a consequence of our activities.

ENVIRONMENTAL FACTORS
Environmental factors include ecological and environmental aspects such as weather, climate, and climate
change, which may especially affect industries such as tourism, farming, and insurance. Furthermore,
growing awareness of the potential impacts of climate change is affecting how companies operate and the
products they offer, both creating new markets and diminishing or destroying existing ones. The
government takes serious matter on protecting the environment where they impose many regulations and
laws in protecting, preventing and controlling industrial pollution and improving urban environment.

<Conclusion>
It is important for managers to consider factors such as tax changes, new laws, trade barriers,
demographic change and government policy changes, opportunities to enter new or emerging markets,
their perceived weaknesses and competitions that can impact on the operations of Asda and rank such
factors in the order of their likelihood of occurring and also rate the impact if it did. The higher the
likelihood of it occurring, the greater the impact of any change and the more significant this factor will be
to the firm’s planning. A SWOT/PESTLE analyses are therefore important to the day- to-day
management of Asda stores.