This helps in lowering the labor wage expenses. However, a healthy capital market results in lower dependence on foreign currency. The reason is that the place people can be reached has changed, as have their needs because of the new situations. PEST analysis takes into account four separate factors whose initials create the eponymous acronym ‘PEST’: Political ones, Economic ones, Social ones, and Technological ones. Hofstede’s cultural dimensions can be used: Power Distance, Individualism versus Collectivism, Masculinity versus Femininity, Uncertainty Avoidance etc. Companies are required to set up their business by being bound by the law, and violation of any law can result in a penalty or the cancellation of business license. Play a crucial role in economic growth of a country. to banking institutions, but it might also affect companies whose strategies rely on taking out large loans. Similarly, the production cost will also increase with the increase in the price of supplies by the supplier. There are several internal as well as internal factors which affect the economy. This may mean the emerge of opportunities for a business, but watch out: every new technology replaces an older one. You have to compare the current levels of inflation, unemployment, economic growth, and international trade. Especially in times of rapid world population growth, and overall demographic changes, the study of people is crucial for marketers. While in traditional western countries a typical household consisted of husband, wife and children, nowadays there are more married couples without children, as well as single parent and single households. The company is not alone in its business environment. Environmental analysis is the term given to the process of looking at all of the different external factors that affect a business. The large and diverse demographics both offer opportunities but also challenges for businesses. Tariffs are a type of taxes which is imposed on imported goods. Therefore, it is right to say that the high income of people is good for commercial businesses and low income of the population is cause loss to commercial businesses. Some of the most important demographic trends that affect markets are: The world population is growing at an explosive rate. This may include all kinds of characteristics of the population, such as size, growth, density, age- and gender structure, and so on. In this section, you will learn about all the factors which affect the economic environment and will also learn how these factors affect an economic environment. The economic environment consists of economic factors which affect the buying habits of consumers and the commercial behavior of companies. The reason is that changing demographics mean changing markets. Demographic forces relate to people. Economic factors are connected with goods, services, and money. What is Constructive Criticism and How to Accept it? The Socio-Cultural forces link to factors that affect society’s basic values, preferences and behavior. This involves laws, government agencies and pressure groups. I love writing about the latest in marketing & advertising. Characteristics of the Product Life Cycle Stages and their Marketing... Cost-based Pricing – Pricing based on Costs. Product Mix decisions – Width, length, depth and consistency. Keep in mind that when only the economic aspects of something are considered, it may not … Elements of Marketing Mix Product – A product is anything that satisfies a consumer need. Despite directly affecting businesses, these variables refer to financial state of the economy on a greater level — whether that be local or global. Anthropologie targets a wealthy market, so they can afford to take a unique pricing approach which is tailored to that specific economy, The rise in global development and worldwide increase in GDP (Gross Domestic Product) means that their target market is gradually growing, On the other hand, this global development might increase labour and material costs in Less Economically Developed Countries where their products are manufactured (meaning lower profits), You can find an entire PESTLE analysis of Anthropologie, The UK boasts one of the highest GDPs in the world, trailing behind only Germany within Europe, The United Kingdom has a constantly increasing amount of Foreign Direct Investment, The area is still feeling the effects of the 2008/2009 economic recession, as well as the Brexit economic setback, A full PEST analysis of the UK is available. The economic environment can be defined as the combination of all the economic factors such as, inflation, income, employment rate, etc. The examples of microeconomic factors are demand, competitors, market size, distribution chain, suppliers, supply, etc. Changing exchange rates might affect how much a company has to pay to its international supplier to satisfy them, which can affect profit margins, as well as take a lot of resources to stay on top of. Understanding how Economic factors affect business is essential to making smart decisions and guiding your company to greater heights. This changes requirements for effective marketing strategies and should be kept in mind. Increased production cost means increases in the prices of products. Therefore, high tariff rates are preferable, as a result of which there will be less import of foreign products and people will buy more local products. The Macro Environment consists of 6 different forces. Another great way to learn to about how economic factors affect business is to look at PEST analyses which include them. Technology changes rapidly, and organizations are required to change their technology or update their technology to keep up with the changing technological environment. The inflation rate can be defined as the rate at which the process of goods and services increases. Natural resources play an important role in the business environment. In addition to this, the government can introduce a new law which forces companies to change their method of doing business which puts a bad impact on the business. Relevant Article: Social Factors Affecting Business. It may be a good, service, event, experience etc. These are: Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological forces. For example, if an organization increases the price of a particular … Innovation has both positive and negative impact of the economic environment. — An economic recession (of whatever scale) has the potential to change the purchasing attitude of customers, which might force companies to drop their prices or clear smaller volumes. Further, changing markets mean a need for adjusted marketing strategies. The following are the main economic factors that greatly influence the consumer buying behavior: Personal Income: The personal income of an individual influences his buying behavior as it determines the level to which the amount is spent on the purchase of goods and services.The consumer has two types of personal incomes disposable income and discretionary income.